Pay into wife's pension or S&S ISA?

GazzaBloom

Could you help me understand which scenario could be more beneficial?

Wife doesn't work and has a Vanguard SIPP with no further contributions going into it. I am still working full time 40% tax payer and am maxing my salary sacrifice to the £40K limit with my employers contributions.

Would it more beneficial for any extra savings I can make over the next few years to be made into my wife's SIPP or a S&S ISA (assuming the same underlying invested funds in both and no requirement to touch the money for say 10 years)

Any extra money I can save has already been taxed at 40%

The way I understand it is - I can pay £2,880 into my wife's SIPP and she will get 20% tax relief so a total contribution of £3,600 that will be possibly not be taxed on withdrawal if under the income tax threshold. 

If I pay £2,880 into S&S ISA it will grow tax free and remain tax free on withdrawal regardless of tax thresholds but doesn't get the same compound benefit of the extra 20% boost on the way in.

So, it appears that any extra savings up to £2,880 a year would be better going into wife's SIPP and then anything after that into S&S ISA, is that correct? Have I misunderstood or missed anything? apart from there may be a difference in platform fees/annual charges  between ISA and SIPP.

Dazed_and_C0nfused

It's actually a 25% "boost" on the way in, £2,880 becomes £3,600.

If she will have spare Personal Allowances to use up when taking the pension then that seems the better option.

How does her State Pension stand, could she benefit from voluntary contributions?

Audaxer

GazzaBloom said:

The way I understand it is - I can pay £2,880 into my wife's SIPP and she will get 20% tax relief so a total contribution of £3,600 that will be possibly not be taxed on withdrawal if under the income tax threshold. 

If I pay £2,880 into S&S ISA it will grow tax free and remain tax free on withdrawal regardless of tax thresholds but doesn't get the same compound benefit of the extra 20% boost on the way in.

So, it appears that any extra savings up to £2,880 a year would be better going into wife's SIPP and then anything after that into S&S ISA, is that correct? Have I misunderstood or missed anything? apart from there may be a difference in platform fees/annual charges  between ISA and SIPP.

If your wife is over 55 and no other taxable income, she can pay in £2,880 to the SIPP every year and take out the £3,600 after the tax relief is added, and then pay it into her S&S ISA if she has that much ISA  allowance free.

UrbanAchiever

I've faced a similar dilemma. I've chosen to pay into an ISA rather than a SIPP for my wife as my goal is to retire 4 years before I can access my DC pension, so will need savings to draw upon.  I don't want to tie more cash up in a SIPP that we cannot access until 57.

MX5huggy

The SIPP is better than the ISA for the £2880. Even if she pays 20% tax on the withdrawal because the first 25% is tax free. 

GazzaBloom

Dazed_and_C0nfused said:

It's actually a 25% "boost" on the way in, £2,880 becomes £3,600.

If she will have spare Personal Allowances to use up when taking the pension then that seems the better option.

How does her State Pension stand, could she benefit from voluntary contributions?

Fully funded, can't improve state pension forecast any further (as I am)

GazzaBloom

Thanks all, We will pay into her SIPP first then ISA, sounds like I am on the right track

handful

Interesting reading this, our circumstances are so similar it could have been written by me! I faced the same situation very recently and also opted for the SIPP option. I also need to up contributions to my own SIPP, not paying in enough at the moment.

ukdw

Also worth confirming you haven't got anything on top of the £40k available as carry forward from previous years, especially if you are still paying 40% tax on some of your salary.

Also if your scheme allows you to vary the salary sacrifice amounts might be worth concentrating them in as few months as possible each year, whilst keeping above minimum wage in those months, in order to get some of the NI savings at the 13.25% rate,