Mortgage or Pension

matthew68

Hi all,
This might get a little consusing but here goes......


I'm 51 years old currently paying 40% tax on my employed income over the last 3 years i have earnt £58,000 plus each year. I have a good workplace pension.

I have £50,000 left on my mortgage which i'm paying £780 over the next 7 years.

I have a workplace pension and the current pot stands at £530,000
I have a personal pension and the current pot stands at £30,000


I was wondering and can not get it out of my head, is it worth switching my mortgage to interest only and paying £800 plus into my pension?

I obviously get tax relief on my contributions and i know in retirement with a 25% tax free sum can easily pay my mortgage off.


Just to add to the quiz i also have buy to let properties 1 house and 2 flats with a yearly rental income of £18,000 per annum. I do have mortgages and these properties though

Dazed_and_confused

I'm 51 years old currently paying 40% tax on my employed income over the last 3 years i have earnt £58,000 plus each year.

Just to add to the quiz i also have buy to let properties 1 house and 2 flats with a yearly rental income of £18,000 per annum. I do have mortgages and these properties though

Assuming the and should have been on then you are going to paying am increasing amount of 40/41% tax on your total income as the ability to claim the mortgage interest as an expense against the rents is withdrawn.

This will be even more noticeable if you are in a household claiming Child Benefit.

So the additional pension contributions do appear very tax efficient. We don't know your taxable income (is the £58k before net pay or salary sacrifice pension? And is the £18k profit?) but it is likely you have room to get plenty of higher rate tax relief on additional pension contributions.

But paying off your mortgage is a big psychological weight off your shoulders.

The most popular view is likely to be stick more in the pension but personally I'm not sure I'd want to be moving to 100% interest only.

MallyGirl

I used to overpay my pension but I have switched to sal sac'ing enough into my pension to bring me down to BRT (just under the £40k limit). I am 52 so I know that the TFLS will be available soon (if I want it) and it will cover any mortgage remaining when I retire early. I have part repayment part interest only mortgage.

Dazed_and_confused

to bring me down to BRT (just under the £40k limit)

The normal higher rate limit (for earnings) is currently either £43,430 or £50,000, depending on where you are resident for tax purposes.

232607

I have a part repayment/ part interest only mortgage and was overpaying so that the interest only bit would be cleared at the end of the mortgage term.
About 3 years ago I did the calcs & worked out I’d be much better off putting it in the pension which I did.
It does mean I’ll have to use a bit of my TFLS to pay off the mortgage at the end but the increased effect on the pension far out ways this.

I very much suspect yours will be the same.

Lokolo

You have £50k mortgage, 7 years to go and are paying £780!?

The interest rate must be very high. FGS go and remortgage!

MallyGirl

MallyGirl wrote: »

to bring me down to BRT (just under the £40k limit)

Dazed_and_confused wrote: »

The normal higher rate limit (for earnings) is currently either £43,430 or £50,000, depending on where you are resident for tax purposes.

I meant that the sal sac to get me to BRT meant I contributed just under the £40k limit to my pension. Sorry - wasn't clear

Terron

Dazed_and_confused wrote: »

The normal higher rate limit (for earnings) is currently either £43,430 or £50,000, depending on where you are resident for tax purposes.

When you have BTL the calculation of the income tax rate is done before the new relief is subtracted. Say you are paying £16k pa in mortgage interest Currently you get to subtract 25% of that from your income (next year zero). For the other £12k you get relief at 20% but only after the income tax rate is calculated. So if your net income after subtracting the interest costs is over £38k you will be paying higher rate tax.

Dazed_and_confused

So if your net income after subtracting the interest costs is over £38k you will be paying higher rate tax

Outside of Scotland you have to have adjusted net income in excess of £125k for that to happen.

Even if Scottish resident for tax purposes you would only pay higher rate tax when you hit £38k if your adjusted net income was (roughly) £110k or more.