Tax relief on pension contributions

Rikaroo

Hi all

We had life insurance through our endowment which paid up after my wife was diagnosed with breast cancer (all fine now though:j)
We ended up with £64k and I'm thinking paying off the mortgage (currently £59K) may not be the best thing to do with the cash.

If my better half earns £45100 which I think just about takes her into the higher tax gang.
Does she then get the full 40% booster from the govt on everything she puts into a private Sipp?

Seems like a great deal if so.

AnotherJoe

No, just the difference above whatever the high rate tax band is.


The government isnt THAT generous LOL.

Paul_Herring

Does she then get the full 40% booster from the govt on everything she puts into a private Sipp?

No, only on the amount upon which 40% tax was paid.

At the other end, however, you would get 20% relief on contributions that would have fallen into the tax-free allowance (an extension, if you like, of the boost £2,880 gets up to £3,600 that even those not earning can take advantage of.)

ColdIron

Rikaroo wrote: »

If my better half earns £45100 which I think just about takes her into the higher tax gang.

Not quite, the higher rate threshold is £46,350 if she has a standard tax code (1185L)

kidmugsy

Will paying off the mortgage make you feel utterly comfortable and complacent? Goody; consider it seriously.

On the other hand if either of you makes pension contributions by salary sacrifice (aka "salary exchange" or "smart pension") you could consider increasing them - you'd avoid 20% income tax and 12% employee's National Insurance Contribution. Some enlightened employers even chuck in part of their saving on Employer's National Insurance Contribution.

By the way, what's the interest rate on your mortgage?

Rikaroo

Argh, should've known they wouldn't call for that one.
Just have to keep working till we're 95!!!128580;
Cheers for the replies. Glad I checked before I approached her with my amazing plan!!!129300;
Mortgage is .5 above base rate.
I run my own 1man ltd company earning about £8k salary, £2k dividends and workplace pension of whatevers left over after all expenses/tax so about £15-20k a year in the HL pension i started 3 months ago. Now 46 and beginning to panic...

Dazed_and_confused

If your wife is Scottish resident for tax purposes then she is likely to be paying higher rate tax on any taxable salary/company benefits above £43,430, not the £46,350 which applies to the rest of the UK.

kidmugsy

Rikaroo wrote: »

Mortgage is .5 above base rate.
I run my own 1man ltd company earning about £8k salary, £2k dividends and workplace pension of whatevers left over after all expenses/tax so about £15-20k a year in the HL pension i started 3 months ago. Now 46 and beginning to panic...

No great incentive to overpay the mortgage then.

Are you both using the current accounts and regular savers that pay 5% p.a.?

bluenose1

If your wife's employers offer salary sacrifice, and I think many do as it is also to their advantage, then for every £68 you put in of her salary then £100 goes into her pension pot savings. Still worth considering even if only on basic rate tax.
I am leaving my options open to retire at 55. If I do decide to go I should have an additional £70k in my DC pension pot doing this. I can withdraw it tax free up to my personal allowance.
If anything happens to me this money is paid to my oh so win win from what I can see.

Would it be an option to live off the insurance and massively increase her salary pension contributions over the next couple of years.? That £59k could potentially be worth over £86k by doing this.
Even if she does pay tax on withdrawal, 25% of the pot will be tax free so will be worth over £70k
Though need to consider when your wife will retire etc.