Would you use mortgage debt to fund carry forward relief?

wotsthat

nick777vvv wrote: »

Thanks for all the contributions.

Clearly my sneaky plan is loaded with ifs', but's and maybe's. And I'll be honest, much as I understand the basics, I'll need someone far more clued up than me to review all the angles before I dive in.

Ultimately, it is a risk/reward play. Yes, I could lose my job, yes, the market could tank, yes, house prices could crash, yes, interest rates could quadruple etc etc. But those variables have been in place forever and will continue to be so.

I guess it boils down to the chance to grab the extra relief whilst it's still being offered against the chances of the whole thing going tits up before I can get my hands back on the capital in five years...

Currently I've extended the mortgage out to state retirement. This allows capital payments to be diverted to pensions but I still get to see the mortgage reducing (which I like).

However, I'm also thinking of borrowing so I can max out pension contributions in a 5 year run up to getting the PCLS. The 5 year is arbitrary but if things went tits up and I was left without an income and a large mortgage I could muddle through for a few years but more might be a bit of a grind.

I know some seem to lose sleep about these sort of ideas but a 40% uplift (half of it cash in hand) on loaned money at 2% seems a more than reasonable risk reward especially as most of the risks can be mitigated.

nick777vvv

Here's another idea.

The first 20% of relief gets added to the pension investment automatically. But the remaining 20% has to be claimed via my tax return. When the cheque arrives, this could be used to make a one-off mortgage overpayment instead.

The lure of getting that extra 20% tax back is quite convincing ...

kidmugsy

nick777vvv wrote: »

Here's another idea.

The first 20% of relief gets added to the pension investment automatically. But the remaining 20% has to be claimed via my tax return. When the cheque arrives, this could be used to make a one-off mortgage overpayment instead.

The lure of getting that extra 20% tax back is quite convincing ...

True, but remember that your cheque for the pension provider has to be for £80 in the first place, before the £20 comes winging back to your wallet.

UPDATE "£80" replaces erroneous typo "£100".

nick777vvv

Ah, good point.

Any idea how soon, after writing the cheque to the provider, you can claim back the 20% from HMRC?

jamesd

If it was for regular payments you'd just tell HMRC what you're doing and ask them to adjust your tax code. No need to wait.

For ad hoc payments now is the perfect time because you can claim the money back in your tax return and you can submit that in a few weeks, with estimated amounts for some figures if necessary, and get a lump sum payment from HMRC a few weeks later in your bank account.

Notfarfromtheborder

Was thinking of something similar myself, but thought that any extra payments made to use up previous years allowances would only attract 40% tax relief from the year the payments were made. As I SS down to BR level then I believed I would only get 20% relief. Is this a factor that I have right and one for the OP to factor in?

jamesd

Yes, you get the relief at the relevant level for the income being sacrificed so if you sacrifice or contribute in the basic rate range some will get basic rate relief.

wotsthat

nick777vvv wrote: »

Here's another idea.

The first 20% of relief gets added to the pension investment automatically. But the remaining 20% has to be claimed via my tax return. When the cheque arrives, this could be used to make a one-off mortgage overpayment instead.

The lure of getting that extra 20% tax back is quite convincing ...

Or use that cheque to make another pension payment and get some more tax relief.

In the scheme of things it's just another payment but I find it strangely satisfying.

Snakey

Notfarfromtheborder wrote: »

Was thinking of something similar myself, but thought that any extra payments made to use up previous years allowances would only attract 40% tax relief from the year the payments were made. As I SS down to BR level then I believed I would only get 20% relief. Is this a factor that I have right and one for the OP to factor in?

Yes, and you are also restricted to your total earned income for this current year unless they are employers' contributions.

The OP did say he'd read everybody's comments and, although he hasn't mentioned either of these things, I assume he is nonetheless taking them into account when refining his plans.

And also, that the amount that counts towards your annual allowance includes any tax relief added on by the pension scheme (I think... I make mine via salary sacrifice so it's not something I've ever needed to research).

Imagine having a £70k salary and making a £150k payment into your pension (because £150k was your total available AA amount) in the belief that you'd get 40% tax relief on the lot. The look on your face when you realised would be an example to us all.

nick777vvv

My understanding is that you can contribute as much as your earnings within the current tax year, less any contributions made in previous years.

Hargreaves L have a carry forward calculator which I used to get an idea of the max I could put in.