£5k to invest a month

VickyMSE

Hi there
So my partner and I currently save somewhere between £5000-5500 a month. Apart from shovelling it into ISA's and it sitting in our current account we aren't doing much with it.
I am looking for ideas on what we should be doing with it, so I thought perhaps here would be a good place to start.
I figure we could overpay our mortgage, although we will probably do that in a reasonable chunk when we re-mortgage at the end of our fixed period. The interest isn't terrible, my parents have said we should pay off the mortgage asap to remove the weight dangling above us. However in all honesty we don't see this as a high priority.

In principal we would like to get into property. Nothing hugely time consuming, however we were turned off the idea after speaking to my uncle who cautioned that being higher rate tax payers will diminish returns significantly. That we would need to do things via a limited company for the idea to even be viable. He said said to go for HMO's and not to waste our time single occupancy. We haven't explored this idea at all yet. 

I was hoping to find a guide on here about what people usually do to grow and expand their income. We are at the beginning of this path so any advice would be gratefully received. 

Albermarle

You do not mention your and your partners pension situation,
Normally for higher rate taxpayers this is the investment route of choice for long term investing, due to the large tax benefits .

VickyMSE

Thanks Albermarle.
Not much on that front I have to say. We each pay about £200 per month each into the peoples pension, it is set to "adventurous" and we haven't looked at that in a while. I will google some guides to pensions now!

Alexland

£200 per month of pension contribution is pretty low for a higher rate taxpayer and you may now have some catch up to get your pensions in a better state. It's worth considering if you can contribute enough to get your income down to being basic rate tax payers.

colsten

So you are thinking of becoming landlords. What are your qualifications for this? How much time do you have for landlord duties? What are your insurance, maintenance and tax implications?

Regarding pensions:

1.  how much do you reckon a contribution of £200 a month now will pay you (in today's money) in 50, 60, 70 years' time? Will that be enough to sustain you?
2. are you employed? What works pensions do you have? How much is the max your employer will contribute? What is the max you can contribute?

That aside, are children, and their education, a consideration?

VickyMSE

Thanks Alexland and Colsten.
In answer to your questions; No kids, we won't be having any. We are employed, we joined the peoples pension scheme when work set it up. I don't recall being asked about amounts we wanted to contribute. I will enquire with payroll, however I suspect the legal minimum contributions are being made. Very happy to increase our contributions. Presumably if I phone payroll they would have the information on what the maximum we can contribute is? I don't know what would determine this amount at all. is that our employer or us?

Regarding being a landlord. We have no experience ourselves. My Uncle has several HMO properties and strongly advocates us to explore the idea. We have both lived in HMO's before as students. I think we can find the time, I actually quite like the idea of investing in bricks and mortar as well as our stocks and shares isa. 

It seems sensible to keep filling our ISA's and we will explore the pension contribution options. Whilst putting some eggs in other baskets like property. I must say we do feel directionless in this aspect of our lives, apart from saving for the sake of saving. We are fairly frugal and fancy cars etc don't really appeal to us. My uncle with the HMO's has a taste of fancy cars, very exotic holidays and generally living the high life. which gives him a focal point. Honestly none of that really speaks to us, which leaves us without a sense of direction.

I guess many of you have kids too which gives you that focal point, but what else do you aim for?
The idea of building a property business sounds like a focal point we want.
Many thanks for your help so far

marycanary

VickyMSE said:

In principal we would like to get into property. Nothing hugely time consuming, however we were turned off the idea after speaking to my uncle who cautioned that being higher rate tax payers will diminish returns significantly. That we would need to do things via a limited company for the idea to even be viable. He said said to go for HMO's and not to waste our time single occupancy. We haven't explored this idea at all yet.

HMOs tend to be very time-consuming. There are lots of regulations concerning amenities, management, repairs and fire detection equipment. Most need to be licenced so you will have to comply with the licence condition imposed by the local council.  They are not for the faint hearted or hands off landlord.

Thrugelmir

Until you decide what to do. The mortgage is at least a place to start. Better than the cash doing nothing in your current accounts. 

Alexland

VickyMSE said:

Very happy to increase our contributions. Presumably if I phone payroll they would have the information on what the maximum we can contribute is? I don't know what would determine this amount at all. is that our employer or us?

Generally you can have total pension contributions of up to £40k per tax year provided it is supported by relevant earned income during that tax year. Very high earners might only be allowed to contribute less due to tapering. In your case you may be allowed to contribute more as you probably have unused carry forward allowance from previous tax years you were a pension scheme member but did not use your annual allowance but such contributions would still need to be supported by current tax year relevant earnings.
Roughly for every £100k you accumulate in pension(s) it might generate around £3.5k per year in inflation linked income. It might be more or less depending on the age of retirement, stock market valuations at retirement, etc. So people comfortably retiring now have hundreds of thousands invested. In the future with inflation to retire comfortabley will require millions.
The reason to use a pension is because you would avoid paying higher rate tax now and then in retirement expect to draw 25% tax free, some of the 75% within your tax free personal allowance and the remainder taxed at basic rate. So it's basically delaying the income until later in life when you can draw it at a lower rate of tax.
In addition to the tax benefit - over the long term (with some ups and downs along the way) you would expect the stocks and shares in an adventurous pension fund to grow at a rate above inflation and faster than the cash interest rate you are paying on your mortgage.

TheAble

Don't overcomplicate by getting into property. The political winds around it have blown ill for many a year. Take covid - tenants well looked after, nothing for landlords.
Keep it simple - ISAs, pensions and paying down your mortgage. It's not glamorous on the face of it but it works.

VickyMSE

Thanks Alexland. I used a pension calculator and we are way off a "reasonable target". We need to increase pension contributions by at least £800 per month each in order to each have an income of £40k per year. which is what the calculator suggests is reasonable.
 I have emailed payroll asking what % I currently contribute to my pension, as well what my employer contributes. I also asked if our employer contributes more than my percentage to any of the other employees. I'm wouldn't ask for a pay rise, however if there is more to be squeezed out of the pension side I'd be a fool not to ask.

Hopefully payroll are helpful, I will ask them to do the math and say I want to increase my overall pension contribution by £800 per month, what are my options. I appreciate it isn't exactly their job, but they may be able to help.


Based on what you are saying, I am encouraged to not over pay the mortgage. Our rate is 1.62% I think.(I appreciate there is probably far better out there)  I'd even be keen to explore remortgaging to pull out our equity to invest into something else. The question at this stage is what though!

Do any of you have experience on the buy to let front or is that for a different section of the forum?
Also we currently use the "Barclays smart investor" in an isa. Mostly out of laziness as our accounts and mortgage is with Barclays. What are peoples thoughts on Barclays investor platform?