3 Years Maxing for Comfortable 30+ year retirement

michaels

If you can salary sacrifice then you benefit from 12% NI as well as 20% income tax if you go below the higher rate threshold. Plus your employer might contribute some or all of the 13.8% employers NI they save.

Next as you have not been using your 40k pa allowance so far you can roll forward up to 3 years of unused allowance.

This lets you get really creative, salary sacrifice down to minimum wage and pay most of the rest of you income into your pension as a personal comtribution. At minimum wage you will have paid very little income tax but can still get 20% tax relief on tax tou haven't paid. Get your partner to do similar and get your household income below about 4k for the year and benefit from full working tax credits.

Do this alternate years with income down to the higher rate limit the other year to give you enough to live on when averaged over each two years...

enthusiasticsaver

If you can afford to live off £35k gross then I would think the plan sounds as if it would give you a good base to be working off towards retirement. Having a variety of pots to draw on as you get closer to retirement gives you the best options though. We aimed for retirement at 60 and started planning for it in mid 20s. We actually have or will retire at 58. OH went last year and I go at the end of this one. We used a variety of vehicles to finance this from stocks and shares isas, DC and DB pensions and SIPPS and a second property which is being sold and will help finance the first tranche of our retirement.

Good luck.

jamesd

Is it a salary sacrifice scheme, where you save NI as well as income tax? If it is, best to sacrifice down to minimum wage for many months then just enough to get employer matching for the rest. This maximises the amount of 12% NI you save.

Worth learning about VCTs, they give 30% tax relief in the year of purchase, capped at the income tax due that year. Good for your basic rate income. Can sell after five years then repeat with the same money, potentially making income tax optional for you.

timthebin

Dazed_and_confused wrote: »

Child benefit is based on adjusted net income which is totally different.

Thanks for the clarification - I think this was an issue of semantics....

michaels wrote: »

If you can salary sacrifice then you benefit from 12% NI as well as 20% income tax if you go below the higher rate threshold.

I suppose this means it's never as simple as saving 40% / 20%... rather its 42% for HR and 32% for Basic Rate... brings them much more in line.

enthusiasticsaver wrote: »

Having a variety of pots to draw on as you get closer to retirement gives you the best options though.

Again something else to consider... I will take a look at a SIPP to pay additional contributions into, rather than 100% of contributions into my work scheme. Good luck to you too.

timthebin

jamesd wrote: »

Is it a salary sacrifice scheme, where you save NI as well as income tax?

Worth learning about VCTs, they give 30% tax relief in the year of purchase, capped at the income tax due that year. Good for your basic rate income. Can sell after five years then repeat with the same money, potentially making income tax optional for you.

Thanks for this Jamesd

To answer your first point - yes it is a SS scheme that allows me to save NI as well as income tax.

As you said I have done a small bit of research to VCTs... whilst I was always aware of VCTs as a business however had no idea about the tax incentives on offer. Whilst on paper this would be more advantageous than ISAs once the annual pension limit is achieved - I will need to do a LOT more research before I feel comfortable entering these vehicles... One thing is for certain; VCTs don't get much publicity...

Dazed_and_confused

Child benefit is based on adjusted net income which is totally different.
Originally posted by Dazed and confused
”Thanks for the clarification - I think this was an issue of semantics....[/I]

What is semantics to one person is an unexpectedly large tax bill to another!

There is a lot of inadvertent misinformation posted on these types of threads and it's easy for people to believe without question what is posted so a bit of clarification never does any harm, maybe obvious to you but there is a big difference between taxable income and adjusted net income.

jamesd

With salary sacrifice you can get both higher rate 40% income tax saving and some 12% NI saving if you concentrate the sacrifice into the minimum number of months. NI is calculated for each pay period, income tax for the whole year.

Because I have lots of non-work income I've been getting 40%+12% on much of my basic rate range work income. Income tax takes the extra non-work income into account but to salary sacrifice it's basic rate range NI. Then I do VCT buying to eliminate most of my remaining tax bill.

The Albion VCT is a good boring choice to get started with.

michaels

jamesd wrote: »

With salary sacrifice you can get both higher rate 40% income tax saving and some 12% NI saving if you concentrate the sacrifice into the minimum number of months. NI is calculated for each pay period, income tax for the whole year.

Because I have lots of non-work income I've been getting 40%+12% on much of my basic rate range work income. Income tax takes the extra non-work income into account but to salary sacrifice it's basic rate range NI. Then I do VCT buying to eliminate most of my remaining tax bill.

The Albion VCT is a good boring choice to get started with.

Correct me if I am wrong, but I assume VCT purchases whilst helping mitigate income tax, will not result in any change to my income when assessed for tax credits entitlement? Thus for the moment I will carry on using pensions but if I end up getting assessed under universal credit rules then it may be time to explore this option.

resk

kidmugsy wrote: »

The likeliest change in tax relief on the horizon is probably an equalisation of the relief for 40% and 20% taxpayers. You'd probably gain, therefore, from delaying contributing anything that at present gains only 20% relief.

I've seen this mentioned by a few people. Does anyone know how this would be implemented in cases where the additional employee contributions are deducted from one's pay prior to tax? Currently I do pretty much what the OP is considering - my gross pay is approx 80K per year but I put 35K directly into my pension pot to minimise tax (employer puts in around 5K). The tax relief is automatic - there's no need for me to claim anything back from HMRC at the end of the year or suchlike. If they reduced the relief to 20%, how would this be done? I suppose they'd just hit you with an annual bill, or alternatively block employers from deducting contributions before tax.


The possibility of the relief being reduced makes me even more convinced that I'm doing the sensible thing - take the full relief while it's available!

RickyB2000

One other thing to consider is the LTA. You will only have £360k headroom (assuming LTA increases the same as your assumed rate of inflation). Will your paying in min to get employer contributions for the rest of your working life risk pushing you over the £1million Mark?