Mortgage Free: The final countdown

edinburgher

@mark55man - you have 5 children?! I never realised

mark55man

No just the 4 - but OSHDTH has 5 (I'm pretty sure)

We had ours quite close together and stopped when we ran out of hands to keep them all together 

edinburgher

As one of 5 I salute your hard work 

mark55man

Certainly been hard sometimes, but a balancing act rather than work!.  Most things can be sorted with a bit of perspective, and making sure that everyone is fairly (but not necessarily identically) treated 

ohdearhowdidthathappen

mark55man said:

I was I was as sensible earlier as I am now !!. 

It is hugely difficult to look at the long term when you have 5 little cost centres to worry about in the day to day.  Yet - especially for your OH who I assume is a Higher Rate taxpayer - the advantages of shoving stuff into the pension are real. Even if in the case of younger punters such as yourselves it may well not be realisable for years.  If I'd been less in debt earlier I could have put more in there to get the 40% tax back, and like most people only taking it out at Basic rate as a pension that's quite a win.

He is indeed a higher rate tax payer... I got a bit grumpy with him as he just tipped over the £100k mark after his bonus (by about £3k) and I told him to invest more in his pension as you effectively get taxed 60% otherwise.  He 'forgot' and missed the deadline means we don't get tax free childcare now either!  1st world problems but an annoying oversight

ohdearhowdidthathappen

savingholmes said:

At least you got with the programme in time Mark. Some people never wise up until they come to draw their pension by which time they've made life unnecessarily hard for themselves.

@ohdearhowdidthathappen I would strongly recommend pension - however you are in a unique position as you already have enough home equity to downsize to a decent house - once the littlies up and leave...

Yeah, joys of living in the home counties, very expensive and have a mahoosive mortage but we have about £400k equity, think my NHS pension is ok but I only work part time and started quite late (about 33) so not sure what it's worth.  DH has about 8 pensions all over the place and can't be ar$ed to investigate them

ohdearhowdidthathappen

mark55man said:

No just the 4 - but OSHDTH has 5 (I'm pretty sure)

We had ours quite close together and stopped when we ran out of hands to keep them all together 

Well remembered and very wise to stop when you ran out of hands... ours were a little more spaced out maybe as eldest was 11 when youngest was born.  Notice the age gap more now... a nearly 18 year old doing A levels and going to festivals and a 6 year old about to do year 2 SATS who likes danger mouse and troll hunters with everything else in between  

savingholmes

ohdearhowdidthathappen said:

mark55man said:

I was I was as sensible earlier as I am now !!. 

It is hugely difficult to look at the long term when you have 5 little cost centres to worry about in the day to day.  Yet - especially for your OH who I assume is a Higher Rate taxpayer - the advantages of shoving stuff into the pension are real. Even if in the case of younger punters such as yourselves it may well not be realisable for years.  If I'd been less in debt earlier I could have put more in there to get the 40% tax back, and like most people only taking it out at Basic rate as a pension that's quite a win.

He is indeed a higher rate tax payer... I got a bit grumpy with him as he just tipped over the £100k mark after his bonus (by about £3k) and I told him to invest more in his pension as you effectively get taxed 60% otherwise.  He 'forgot' and missed the deadline means we don't get tax free childcare now either!  1st world problems but an annoying oversight

Can he pay the extra pension out of next month's £ and get the tax back that way?

ohdearhowdidthathappen

No, apparently the deadline was a final thing.
However, I have found out that tax free childcare is based on net income and they take pension contributions into account, so we can still claim.  Our childcare is £400 a month, so it saves us £80pm.. nearly £1k a year, so I'm glad it's not lost

mark55man

ohdearhowdidthathappen said:

mark55man said:

I was I was as sensible earlier as I am now !!. 

It is hugely difficult to look at the long term when you have 5 little cost centres to worry about in the day to day.  Yet - especially for your OH who I assume is a Higher Rate taxpayer - the advantages of shoving stuff into the pension are real. Even if in the case of younger punters such as yourselves it may well not be realisable for years.  If I'd been less in debt earlier I could have put more in there to get the 40% tax back, and like most people only taking it out at Basic rate as a pension that's quite a win.

He is indeed a higher rate tax payer... I got a bit grumpy with him as he just tipped over the £100k mark after his bonus (by about £3k) and I told him to invest more in his pension as you effectively get taxed 60% otherwise.  He 'forgot' and missed the deadline means we don't get tax free childcare now either!  1st world problems but an annoying oversight

@ohdearhowdidthathappen - sorry for the lecture, but I think your OH may be wrong ...

The only deadline your OH might have missed is an internal company one for making additional pensionable contributions into his employment fund, which makes it easier as it is a gross payment.  There is absolutely nothing to stop him putting some of his hard earned bonus/salary into a personal pension (noting that would be his 9th!!) - the payment in should be done by start of April.   Setting one up is really easy and doesn't have to involve a lot of admin. TBH even if you leave it very cautiously invested the rebates make this worth doing. 

What happens with a net (ie after tax) contribution then is that his taxable income will be reduced by the gross equivalent amount, but rather than it getting paid gross from salary he will have to claim some of the tax back via self assessment, and the pension company will do the Basic Rate.  I think it works like this:--

Just say your OH is on a trajectory to earn £106K this tax year.  Up to £100K you will get taxed at 40% on the excess over your Basic Rate limit (usually about £50K).  Over  you will get taxed at 40% on the excess over £100K plus your personal allowance will get reduced by £3k (£1 for every £2 of excess income).  This means an extra £3K will be subject to tax at 40% or £1200.  Meaning you will pay £3600 tax on that £6K or 60%.  The next tax rate up is 45% at about £150K I think??

Now if your OH has enough pension annual allowance (which is £40K either this year or leftover allowance from the preceding 3 tax years) the he could make a donation to a pension fund of £3600.  What will happen then is that the pension will automatically add BRT rebate onto that amount (ie to £4800) and when he does his self assessment return he can notify an additional contribution and will be seen to have paid £1200 too much and will get that back as a refund.  In addition the £6K that has ended up in the pension will get taken off his gross taxable income so you won't lose any of you personal allowance.

So I'm not an accountant or tax lawyer but the above is broadly if not precisely correct - so for a contribution of £3600 from net income you will end up with £6000 in the pension fund and £1200 tax rebate in your pocket when you do your return for tax year 2021/2022 ending 5 April 2022.   

The only reason why this would be less beneficial is if your OH expects to be a higher rate taxpayer in retirement (although it feels like his pots are likely to be money purchase rather than final salary this is something you can manage).  If this is the case you lose some but not all of the benefits - as avoiding the personal allowance taper is a real gain.