Ideas for investment on pension, ISA etc.

IamWood

Thank you very much Albermarle, for your helpful advice.
I'll be looking into increasing my work pension contribution to minimise my 40% tax  
If I make lumpsum payment for this year's pension allowance and the year before, Can I get 40% tax relief for both years?

jimjames

If you currently have all the money in your current account bear in mind that you have a £20k ISA allowance each per year so could get £40k into an ISA by putting £20k now and £20k in April. If you're not sure about S&S ISAs yet then opening a cash ISA with this money will at least make sure you don't lose the allowance (and is better than it being in your current account!)

In terms of university payments check what your son will be entitled to as loans, due to your income the limit may be quite low and not cover even the basics of accommodation. I ended up paying a monthly allowance rather than a lump sum.

AlanP_2

IamWood said:

Thank you very much Albermarle, for your helpful advice.
I'll be looking into increasing my work pension contribution to minimise my 40% tax  
If I make lumpsum payment for this year's pension allowance and the year before, Can I get 40% tax relief for both years?

You won't get 40% tax relief on all of it, and in fact you will not be able to pay two year's allowances in.

Pension contributions have 3 limiting factors:

1) Relevant Income in tax year (for most people this is salary) - You can't personally contribute more than this including tax relief.

2) Annual Allowance which includes employer contributions as well as personal + tax relief - £40k per year but can use carry forward where applicable.

3) For Salary Sacrifice schemes you can't go below National Minimum Wage in your paypacket.

In your case I think we are looking at 1 and 2 and at a £75k salary you can't contribute 2 * £40k allowances.

What you can contribute is £75k less the gross value you have already contributed to a pension this year. That tells you what the maximum amount left is so then adjust for your normal Feb / March payroll pension contributions and multiply by 80%.

You then need to calculate your AA situation based on this year's overall contributions and the previous 3 years, you can use a calculator such as https://www.hl.co.uk/pensions/contributions/carry-forward-rule/annual-allowance-calculator once you have collected the data. Don't forget employer contributions.

You will only get 40% / HR relief to the extent that you are liable for 40% tax. At taxable pay of £49,999 you get no HR relief, just because your taxable salary goes to £50,001 you don't magically get 40% relief on all pension contributions (just on the £1 that would have been taxed at 40%).

IamWood

Thanks a lot, AlanP_2, for your detailed explanation!

IamWood

Huge thanks to all of you. I have learnt a lot for just a couple of days. Really appreciated!
Revised plan:

1) £40,000 in saving account as family emergency fund.

2) Maximise out my work pension contribution: 35% + 5% (employer). This would move my salary to 20% tax band

3) Make a lumpsum payment to top up my pension.
    Should I make the payment to my current pension account with L&G? L&G Multi Asset 3 dose not perform that well as hoped, What about a new SIPP account?

4) Open two S&S ISA accounts for both me and Mrs. (Mrs is just too nice, half of her part-time salary goes to her charity work as agreed. She insists to store treasure in heaven . Anyway my leftover money would go to ISA account monthly.

How does it sound? Any advice is welcomed!
Thanks again.

Albermarle

 Should I make the payment to my current pension account with L&G? L&G Multi Asset 3 dose not perform that well as hoped, What about a new SIPP account?

From a tax point of view it does not matter if you add it to one pension or ten .

So it is then a matter of charges, investment choice and convenience. For inexperienced investors it can be easier to stay with the workplace pension as they are a bit easier to manage . L&G Multi asset 3 is a low/medium risk fund with a relatively modest growth target.

If you want to take some more risk for hopefully more reward then might just be a case of switching L& G multi asset 4 or 5 .

Albermarle

Edit: I read through the link. Am I correct in thinking that if I earn £100k and I start a private pension and add £40k to it, I would get 20% tax relief automatically and claim the remaining 20% using a self assessment form?

The maximum £40K includes your contributions + any tax relief added + employers contributions .

It also includes all pensions contributed in one tax year . So for example in your case you would have to deduct all additions to your workplace pension before calculating how much more you can add . 

You can claim the higher rate tax relief through self assessment or just by contacting HMRC directly. Do you do this already for your workplace pension ? Although it only applies when your contributions are taken out after tax has been paid . If they are taken out before tax is paid then there is no more tax relief as you did not pay any in the first place.

FirstTimeSolo

Thanks @Albermarle Very clear explanation! No I do not claim a tax relief on workplace pension. It is deducted at source so assume I don't pay tax on it. I will double check my pay slip. 

IamWood

Just to clarify:
Can I claim tax relief for the year before if the lumpsum is over £40K?  Thanks.

AlanP_2

IamWood said:

Just to clarify:
Can I claim tax relief for the year before if the lumpsum is over £40K?  Thanks.

You can only claim tax relief for the year you make the payment in. If you think about it this aligns with the principles behind the "relevant income" limit i.e. income in current tax year.

You can possibly use carry forward to pay in more than the £40k Annual Allowance as explained above which will enable you to get tax relief on over £40k (if supported by relevant income) but will not adjust last year's tax account.

Do not confuse and inter-change "tax benefit" with "annual allowance", whilst they interact they are not inter-changeable.