Early-retirement wannabe

gadgetmind

The £150kpa is a bummer as you're hitting AA taper and all of the 60% bracket due to personal allowance clawback. I dropped to a four day week when I hit this stage, and got some work/life balance in place.

Putting anything above £100k (that you can) into a pension is a no brainer, as could be getting an electric vehicle via company next year when BIK hits 0%!

I did a interest only offset mortgage a few years back, and then pretty quickly fully offset it, so it's there as low fee emergency money in retirement.

What's your partner's income/pension situation like? My wife never earned more than personal allowance, so we put her entire income into a SIPP every year as you still get 20% tax relief despite no tax paid.

Gary1984

Because I have the limited company I only take £50k from it as a combination of dividends and salary. The rest goes into my stash for when I'm between contracts and my SIPP. When I've needed a bit more (e.g. for decorating, holidays etc) I've been dipping into the ISA. The government will start contributing towards nursery costs next June when my son gets to 3 and we're nearly finished what we want to do with the house so hopefully I won't be dipping into them as much after that.


I must admit we have become somewhat more spendy in the last few years! However things have been quite stressful and busy with work and my son so we just pay for convenience a lot of the time in order to make life easier and give us more time together.


My wife works 1 day a week and runs a small arts & crafts business. She contributes a few hundred a month but isn't something I'm taking into account in my planning. Before we had our son she worked full time and made about £20k a year. However, she was always pretty miserable in full time work and as long as I'm earning what I do she doesn't need to take on any work she doesn't want to do. One day a week plus her own business with the additional time this allows her to spend with our son is a pretty good mix at the moment.


There's not too much point in contributing to my wife's pension at the moment as dividend tax would be 32.5% on the way out to get the 25% bonus on the way back in. Better to focus on my own SIPP for now to get the corporation tax reduction as well. Once that's been maxed out I'll consider LISAs, my wife's pension and VCTs.

atush

Can you make her an employee?

Ie have her doing admin or something? then she could have a pension too?

Does she have S&S isas in her name too?

Gary1984

I'd rather not make her an employee. Asking her to do the accounts or other admin would stress her out too much and wouldn't be very efficient. Normally I do things like that for her (pay her suppliers for her business and help with tax, insurances etc).


She does have a S&S ISA in her name and in time we'll add a LISA and SIPP.


Thanks for the suggestions everyone!

gadgetmind

Is she getting qualifying years for the state pension? She will for kid under 12 if you don't hit HR tax, otherwise she should register as self-employed and pay voluntary Class 2 with regards to her arts and crafts business.

The idea of having her on the books is great, and she could be a research assistant or similar.

Regards ISAs, we started ours in the late 80s when they were PEPs and we haven't touched a penny of them nor will we until we absolutely have to. We've been maxing them out for pretty much ever and will be doing until state pension kicks in, and perhaps even beyond.

(OK, we did touch them once to lend inlaws money to buy a house, but it all went back in during the same tax year.)

gadgetmind

BTW, when working out whether worth doing wife's pension, bear in mind that she'll most likely be able to draw it our at 0%, whereas you'll have most at 20% and some maybe at 40%. It really is worth working on both.

DT2001

Gary1984 wrote: »

I'd rather not make her an employee. Asking her to do the accounts or other admin would stress her out too much and wouldn't be very efficient. Normally I do things like that for her (pay her suppliers for her business and help with tax, insurances etc).


She does have a S&S ISA in her name and in time we'll add a LISA and SIPP.


Thanks for the suggestions everyone!

Doesn’t need to be admin. Cleaning the office, making the tea etc.
Ask your accountant as anything would be appear to be financially advantageous.
Keep it at a sensible level and HMRC are unlikely to ask any questions.
My OH has paid me in the past to spread her income - I help but hours are not set and paid exactly.

Gary1984

In reality she won't be adding anything of value to the company so I don't want to make her an employee just to reduce tax or increase her pension. I know I'm trying to be as tax efficient as possible but it just doesn't sit well with me. How much can I really pay someone for making me cups of tea anyway and doing a little hovering anyway?


So assuming any contributions to my wife's pension are outside the company structure that means £100 would end up like this after corporation and dividend tax:
£100 * (1 - 19%) * (1-32.5%) * (1+25%) = £68.34


Whereas £100 into the SIPP gives assuming 20% tax rate on the way out with 25% tax free cash:
£100 * [0.75 * (1 - 20%) + 0.25 * 100%] = £85


There's also the fact that a new SIPP would have higher charges as a % of the fund than my own SIPP and dividends above £50k from the company start to reduce our child benefit payments.

[Deleted User]

Gary1984 wrote: »

In reality she won't be adding anything of value to the company so I don't want to make her an employee just to reduce tax or increase her pension. I know I'm trying to be as tax efficient as possible but it just doesn't sit well with me. How much can I really pay someone for making me cups of tea anyway and doing a little hovering anyway?


So assuming any contributions to my wife's pension are outside the company structure that means £100 would end up like this after corporation and dividend tax:
£100 * (1 - 19%) * (1-32.5%) * (1+25%) = £68.34


Whereas £100 into the SIPP gives assuming 20% tax rate on the way out with 25% tax free cash:
£100 * [0.75 * (1 - 20%) + 0.25 * 100%] = £85


There's also the fact that a new SIPP would have higher charges as a % of the fund than my own SIPP and dividends above £50k from the company start to reduce our child benefit payments.

Make her a director?

Gary1984

Again, no. She realistically isn't going to contribute anything of value and I'm not giving her a position just for tax/pension advantages.


I should say she wouldn't want it anyway. We discussed making her a shareholder and she was dead against the idea.