pension, S&S ISA or just keep on filling up Cash ISA

innovate

latecomer wrote: »

If everything else in ISAs the tax rate should be irrelevant?

To a large degree, yes. But there's also the additional income tax you would have to pay, and less than you might have in your pension pot. Example:

If your gross salary is £50,000 and you contribute 6 per cent of this (£3,000) to your pension, then your taxable salary is £47,000. After your personal allowance, that leaves you with £38,895 to tax.

You now pay 40% tax on £4,524 (some £1,809), leaving you with £2715.

You can avoid paying some or all of this by paying more into your pension. Obviously this will leave you with less spending money each month but you have paid your money into your own pocket, tax-free for now. Or, in other words, every additional £1K into your pension will only cost you £600.

Might be worth churning your numbers through a little spreadsheet to see whether you would do better paying some more into your pension.

atush

split your extra cash into 4. Use 1/4 for mtg, then 1/4 each for 1,2,3 (split between you and the OH as Lokolo suggests)

It makes sense to get as much 40% tax relief as you can.

does the OH have a pension?

snowgo

latecomer wrote: »

I understand that there is large benefit to paying more into the pension due to the tax relief but then there is also the downside of not being able to access it for at least 18 years.

The upside of not being able to access it for 18 years in your pension is that it has time to grow with compounding of dividends/interest. If you leave it until close to retirement before adding significant amounts to your pension, you'll find that you've run out of growth time.

I think innovate has given you some excellent advice. In your position that's what I'd probably be doing - including the recommended reading & spreadsheet churning.

Carpi09

innovate wrote: »

I would agree, putting much more into cash ISAs might not be the best choice.

If possible/sensible, make additional pensions contributions to bring yourself back to below 40% tax. With the remaining surplus, you could start a S&S ISA with a "passive" portfolio, may be using Vanguard Lifestyle funds. It's relatively painless to get up to speed with the "passive" approach - you could start reading about it on monevator.com. There are also books you can read about it, the most widely known probably being Tim Hale's "http://www.amazon.co.uk/Smarter-Investing-Simpler-Decisions-Results/dp/0273722077". Monevator will tell you everything in a condensed form, though, and will have some up-to-date suggestions on which funds/portfolios could be appropriate.

Where would you recommend to start with this? I have checked out the link and it states if i invest less than 100,000 I would have to invest through either

Alliance Trust
Bestinvest
Hargreaves Lansdown
Sippdeal

Basically I want passive approach and have nothing to do with choosing shares. Just contribute.

latecomer

innovate wrote: »

If your gross salary is £50,000 and you contribute 6 per cent of this (£3,000) to your pension, then your taxable salary is £47,000. After your personal allowance, that leaves you with £38,895 to tax.

You now pay 40% tax on £4,524 (some £1,809), leaving you with £2715.

.

I'm probably missing something here but I cant figure out the numbers in your example. Is the £4,524 the remaining amount over the high rate tax threshold?

I've just run the figures through an online calculator and according to that I'm actually not in the higher rate band after pension and childcare vouchers are taken into account. I'll have another look later but it appears I'm basically around the threashold so I'll need to check my tax code etc to see exactly whats going on. Pension guy definitely said I was in the higher band so would presume he's right although he may not have known about the childcare vouchers.

latecomer

snowgo wrote: »

The upside of not being able to access it for 18 years in your pension is that it has time to grow with compounding of dividends/interest. If you leave it until close to retirement before adding significant amounts to your pension, you'll find that you've run out of growth time.

I think innovate has given you some excellent advice. In your position that's what I'd probably be doing - including the recommended reading & spreadsheet churning.

True but the same applies for a S&S ISA provided its not touched albeit without the 40% bonus. I realise now is a good time to be adding to the pension but given our child is probably going to end up in private education there are some considerable costs on the horizon. That said its something I would like to do without raiding our ISAs and provided we only have one child its probably feasible.

OH has an NHS pension but who knows what thats going to end up like. Bit of a sore point that one.

innovate

Carpi09 wrote: »

Where would you recommend to start with this? I have checked out the link and it states if i invest less than 100,000 I would have to invest through either

Alliance Trust
Bestinvest
Hargreaves Lansdown
Sippdeal

Basically I want passive approach and have nothing to do with choosing shares. Just contribute.

There's a reasonably current discuss about the best platform here: https://forums.moneysavingexpert.com/discussion/4388043

innovate

latecomer wrote: »

I'm probably missing something here but I cant figure out the numbers in your example. Is the £4,524 the remaining amount over the high rate tax threshold?

Here's what I did:
Gross salary: £50,000
Minus 6% (£3,000) pension contribution: £47,000
Minus £8,105 personal allowance: £38,895
Minus £34,370 taxable at 20%: leaves £4,525 to be taxed at 40% (sorry, was £1 out before and have slapped my wrist)

I don't know about childcare vouchers, but they may be also deductable from your gross.

Source for allowances and threshholds: http://www.hmrc.gov.uk/rates/it.htm

latecomer

Yup thats what I thought. Childcare vouchers are definitely salary sacrifice so it looks like I am just about borderline but will need to check my latest tax code to see what it is.

Book-marked the link - I was trying to find that info out a while back when trying to determine if I was a higher rate tax payer and couldn't find it as simply stated as that!

Thanks for all the replies so far

innovate

Don't forget that company cars, free petrol, medical insurance etc all count as taxable perks and can add a heck of a lot to your gross salary figure.