If you had £100 extra a month...

PeacefulWaters

I'd start drinking Costa Coffee three times a day again.

ColdIron

steampowered wrote: »

If you are a higher rate tax payer you'd be getting £1.40 in your pension for each £1 on your ISA or mortgage

I make that £1.67 for each £1.00 (1 / 0.6 = 1.666)

dilby00 wrote: »

but since we get tax relief on pension, the point about automatically having 20% extra (we are lower rate tax payers) is persuading.

I make that 25% extra (1 / 0.8 = 1.25)

dunstonh

Based on the limited information available, I think the only answer is that it could be any one of the three options. However, there is not enough to go on to say which is best.

1) a stock and shares ISA ( we don't have one yet)
2) mortgage repayments (we are 6 years in)
3) pension (we pay ourselves a pension through our own business so have tax relief).

1 - useful tax free option. Generally worth having

2 - mortgage interest rate is important here. If on an interest rate like 2% then there is little point paying the mortgage off quicker when the money could do better with investments. However, some people like the idea of paying it off earlier.

3 - a bit of important info here that makes you different to probably many of the other responses. You are directors of your own business. This means you are likely (but we dont know enough to be sure) that you are mostly paying yourselves dividends for the bulk of your income. By making contributions via the company, you get money out of the company without paying NI. It is also a business expense so your corporation tax bill is lower. And if you are a basic rate tax payer, you not suffering the 7.5% dividend tax or if you are a higher rate taxpayer (or would be if you drew more out of the company) then you would avoid the 32.5% dividend tax.

So, paying into the pension via the company is the most tax efficient option with 27.5% effective tax relief as a basic rate taxpayer and 52.5% effective relief if you are higher rate (or would be if you drew the equivalent amount out via dividends or salary).

For reference, I have surplus income. I do a combination of 1, 2 and 3.

SailorSam

£100 extra a month, eerrm.....
3 packets of Pontefract Cakes a day.

planteria

dunston's comment re. Pension contributions directly from your company seem ideal to me..

but perhaps it might be worth actually using Cash for such a small monthly value, on the basis that you could earn a good rate for a 12 month period, and then use it for 1, 2 or even 3: if there is a reason that contributing directly from the company is not right for you. you could get 5 or 6% from HSBC, M&S Bank or Nationwide and then use the funds for something else at the end of the 12 months. you'd make more to do 2 than by doing so directly, i assume.

bigfreddiel

I would buy premium bonds