Is this do-able....

Troubleatmill_2

Have lots of equity on the house and am not planning on moving up.

Let's say re-mortgage - and take oohh..lets say extra £100K mortgage (makes the sums easy)
With this 100K - shove into my personal pension - Gordon adds £40K right ( as I'm a higher tax payer ) - so... instant 40K gain. :-)

Over the course of 25 years - odds are (OK it's a gamble ) my £100K + £40K is going to perform much better than the cost of paying my extra £100K mortgage.

The $640000 questions....
1/ Can I do this?
2/ Apart from the gamble/ not moving up property ladder etc... any downside?
3/ If it's that easy - why isn't everyone doing it?

Thanks
Troubleatmill.

roswell

and in that 25 years you pay back £174678.00 to the morgage company for the 100k you borrowed.................. i see a flaw.

how about adding the same as your morgage repayments on 100K (£582) a month to your pension .... or pay off your morgage early saving even more money.

Troubleatmill_2

on the assumption that my mortgage rate is (and will continue to be) lower than the growth of my pension.

Total to repay over 25 years £175K.
Total pension worth after 1 day £140K. - Instant £40K gain :j
- so only 35K difference to improve over 25 years.
- and I get the benefit of 25 years of growth on £40K from the outset.

Projected pension worth after 25 years circa £540K assuming no further monthly investment.

Rather than pay 15% of my salary into pension monthly - I could revert back to 3% (company scheme GIPP ) and use the rest of the funds to pay mortgage.

Forgive me if I'm slow or missing the point...but it still seems a good deal to me.

Thanks
Troubleatmill

EdInvestor

Total pension worth after 1 day £140K. - Instant £40K gain
- so only 35K difference to improve over 25 years.
- and I get the benefit of 25 years of growth on £40K from the outset.

You do realise that income from a pension is taxed at your highest rate after retirement (except for the 25% tax free cash), don't you?

And also that you can never get the capital out of the pension nor leave it to your family ?

Whereas with a house all capital gains are free of tax and obtainable whenever you want to sell? In addition any income obtained from equity release from a property in later life is also tax free?

jackieblue

If you're a 40% tax payer, I think Gordon adds £66k, as it means that your £100k represents only 60% of the total. I might be wrong, but you might want to get one of the experts to check that for you. I'll be watching for the other comments as it sounds like a really interesting proposition and until now I've given no thoughts to these new pension limits as didn't think I had much to put into them. Cheers

claretmatt

Based on a £100k investment into a pension you will get tax relief at the basic rate of 22%, with the remaining 18% claimed through your annual self-assessment.

Furthermore you would also (post 6th April 06) have to have net relevant earnings of £100k to justify such a contribution and this can not take into account any dividends you may receive.