Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • whitevandriver
    • By whitevandriver 18th Jun 17, 8:49 AM
    • 19Posts
    • 9Thanks
    whitevandriver
    Use mortgage to max out wifes SIPP?
    • #1
    • 18th Jun 17, 8:49 AM
    Use mortgage to max out wifes SIPP? 18th Jun 17 at 8:49 AM
    I am not earning but have c£850k between my SIPP and DB schemes at 49. My wife earns and pays into her SIPP to bring her salary below the 40% threshold. Her total pensions savings are c£250k. She is 47.

    Is it mad to withdraw equity from our mortgage (we have a current account mortgage at base plus 1%) to max out the wifes pension over the next few years. The morgage is at a zero balance currently. I would clear the mortgage debt from my tax free pension cash from my SIPP when I hit 55. I am looking at an extra £20k of borrowings a year.

    I don't like leaving unused tax relief but worry about taking on too much risk.

    We have £100k in ISA savings which could clear the mortgage debt we would create in an emergency.

    Constructive advise or observations would be appreciated.

    I want to equalise the wealth and boost our savings for retirement which will be when the Mrs turns 55.
Page 1
    • Dazed and confused
    • By Dazed and confused 18th Jun 17, 9:34 AM
    • 1,492 Posts
    • 621 Thanks
    Dazed and confused
    • #2
    • 18th Jun 17, 9:34 AM
    • #2
    • 18th Jun 17, 9:34 AM
    It's not a strategy I'd have thought of but can see your logic.

    Remember there is much less tax benefit now from what you say, essentially any further contributions won't save wife any tax whatsoever (but will of course increase her pension fund by the basic rate relief at source).

    How would you feel if you went from no mortgage to £20,000 mortgage and wife's sipp went from £25,000 (with basic rate tax relief added) to say £10,000 after a big crash.

    Time for it to build back up but would be a shock to the system.

    Personally I would be leaving the mortgage as it is and ploughing in an amount each month equivalent to what the mortgage payment might be.
    • whitevandriver
    • By whitevandriver 18th Jun 17, 9:40 AM
    • 19 Posts
    • 9 Thanks
    whitevandriver
    • #3
    • 18th Jun 17, 9:40 AM
    • #3
    • 18th Jun 17, 9:40 AM
    Good point. I had thought about this and understand the risks.

    My plan would be for each extra £ into the wifes SIPP from morgage, I would de-risk a £ of my own SIPP into cash or a low volatility cash equivelent.

    Not a perfect strategy, I'll admit.
    • jerrysimon
    • By jerrysimon 18th Jun 17, 9:42 AM
    • 220 Posts
    • 132 Thanks
    jerrysimon
    • #4
    • 18th Jun 17, 9:42 AM
    • #4
    • 18th Jun 17, 9:42 AM
    I did this for my wife in the last 18 months of her full time employment but only put in about 13K using my salary and some of our mortgage, which was the same as yours.

    We are now drawing it all out having gained about 2.5k with her tax relief. She now only earns about 2.5K so we can get it all back out over 18 months without paying tax.

    I thought about doing the same for myself in the last 18 months before I retired (puting in about 40-60K) but as I would pay tax on it because of my pension, decided not to. I kept her SIPP as cash so no risk. Obviously then we would have had to keep it there longer as cash and there would be depreciation from any inflation.

    If I had thought about it earlier I would have maxed out my wifes contribution for the last 3 years up to her salary (around 10K) i.e. 30K before she went down to part time. Of course it would then take about 2-3 years to draw out if we did not want to pay tax on it.

    The other thing to consider is pension recycling a little complicated (and partly what put me off) but may of course come into play if you use your lump sum to subsequently pay off the mortgage.

    Jerry
    Last edited by jerrysimon; 18-06-2017 at 10:04 AM.
    • AnotherJoe
    • By AnotherJoe 18th Jun 17, 10:26 AM
    • 6,925 Posts
    • 7,362 Thanks
    AnotherJoe
    • #5
    • 18th Jun 17, 10:26 AM
    • #5
    • 18th Jun 17, 10:26 AM
    Good point. I had thought about this and understand the risks.

    My plan would be for each extra £ into the wifes SIPP from morgage, I would de-risk a £ of my own SIPP into cash or a low volatility cash equivelent.

    Not a perfect strategy, I'll admit.
    Originally posted by whitevandriver
    I'd say its feasible, you have a backstop in terms of other funds, but could you also achieve the exact same ends by putting your wifes SIPP into riskier funds than you would otherwise?

    For example,and I'm definitely not recommending these funds but its a well used example here, if her SIPP was all in VLS60, put it into VLS80 instead.
  • jamesd
    • #6
    • 18th Jun 17, 1:40 PM
    • #6
    • 18th Jun 17, 1:40 PM
    It's definitely an option but I do have a couple of questions:

    1. Why aren't you retiring now?

    2. Is either of you still paying a non-trivial amount of income tax? Why, when you don't need to any more?

    No income tax in effect can be achieved with VCT buying combined with the pension work. 30% initial tax relief from HMRC, buy say Albion VCT that expects to pay about 7% tax exempt dividends a year (about 10% on net after initial relief), can sell after five years at a presumed capital loss of about 10% at sale time or hold for the ongoing income. So you can make a decent profit on the investment and effectively make income tax free by deferring some of it for five years. About 65% out at the five year mark if you don't sell, 30% from HMRC plus five years of dividends.

    VCTs vary widely in risk level. Albion is at the lower end, with all investments asset-backed by things like school buildings, hotels and care home buildings.

    It appears likely that you've accumulated enough so you can choose to do this and effectively stop paying income tax if you want to.
    Last edited by jamesd; 19-06-2017 at 7:48 AM.
    • whitevandriver
    • By whitevandriver 18th Jun 17, 10:07 PM
    • 19 Posts
    • 9 Thanks
    whitevandriver
    • #7
    • 18th Jun 17, 10:07 PM
    • #7
    • 18th Jun 17, 10:07 PM
    Thanks Jamesd. Not sure I really understand your comments but will reflect on them. I am have no plans to work again unless the wife chucks me out.

    If I can avoid or at least postpone paying income tax, that certainly appeals. My wife's earnings are likely to stay in the mid £50k to mid £60k range until she packs it in.
    • OldBeanz
    • By OldBeanz 19th Jun 17, 12:25 AM
    • 646 Posts
    • 461 Thanks
    OldBeanz
    • #8
    • 19th Jun 17, 12:25 AM
    • #8
    • 19th Jun 17, 12:25 AM
    Another way to look at this is to work out her tax allowances as far as we can predict (obviously if JC wins an election then you capitalist lackies will ..). She can draw her pension 10 years before her state pension date (which at the moment unless she has special arrangements) means 57. She can then draw £16.6k pa for 10 years then £6k pa for he next 30 years (assuming she lives to 97 and has full state OAP) so can aim for a pension pot of circa £350-£400k on which she will lnot pay tax. These figures can be refined but she is on target for that amount (again roughly) using her 40% relief So any extra paid in will be beneficial but will gain less tax relief on the way in and tax on the way out.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

2,981Posts Today

8,356Users online

Martin's Twitter
  • Byebye! I'm about to stop work & twitter, to instead spend glorious time with Mrs & mini MSE. Wishing u a lovely summer. See u in 10 days.

  • WARNING Did you start Uni in or after 2012? The interest's rising to 6.1%; yet it doesnt work like you think. See https://t.co/IQ8f0Vyetu RT

  • RT @JanaBeee: @MartinSLewis Boris is the anomaly (coffee), the others are versions of normal (beer). Lots of same candidates = vote share d?

  • Follow Martin