Financial Planning

Jaguar_Skills

I also posted this in the savings board but hoping to get as many responses as possible! 

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Let me start by saying I completely understand that I am in an extremely privileged position, but I could really do with a bit more of a steer on my financial planning for the future.   I have tried to summarise as much as I can below but happy to answer anything else if more information is needed.

-          Aged 36, with two kids and a fiancée who doesn’t work.   Additional Rate Tax Payer.

 

-          We have two properties.  Our main residence which we have paid the mortgage off (following lots of overpayments and equity release from BTL).  A BTL which brings in circa £1,100 PCM with current mortgage payments of around £300.

 

-          My Private Pension with circa £250k (around 90% equities), I try and put roughly £30k in a year as my employer’s pension means that I nearly hit the £40k per annum.  I am slightly concerned that I am going to hit the lifetime allowance and so maybe I should not be putting so much in.   However, the trade off is that obviously it brings down my tax a bit.  I don’t really understand the implications of going over the £1,073,000 LTA however.

 

-          Workplace pension of £58k

 

-          OH Pension of circa £40k but as she is not currently working, she is not currently paying in.   We talked about the fact that if she does decide to go back to work, her money would probably go into her pension to balance things a bit.

 

-          Vanguard ISA which I pay £750 per month into (currently at circa £12k – probably need to max this out a bit more and maybe reduce pension payments?)

 

-          Both have LISAs which we put the £4k per tax year into.   Only just started this last tax year so with the govt bonus these are between £4k-£5k each.

I am sure I have probably missed information off here so please shout if anything more is needed.   I do try and be as careful as I can with money albeit I’ve never really studied anything to do with it.   Perhaps I need an IFA to go through everything? Not sure if it is really worth it….

Dazed_and_C0nfused

OH Pension of circa £40k but as she is not currently working, she is not currently paying in. We talked about the fact that if she does decide to go back to work, her money would probably go into her pension to balance things a bit.

Why isn't she contributing £2,880 each tax year she isn't earning?  She will still get £720 in basic rate tax relief.

Jaguar_Skills

Dazed_and_C0nfused said:

OH Pension of circa £40k but as she is not currently working, she is not currently paying in. We talked about the fact that if she does decide to go back to work, her money would probably go into her pension to balance things a bit.

Why isn't she contributing £2,880 each tax year she isn't earning?  She will still get £720 in basic rate tax relief.

Because she currently doesn’t have any money? Would you suggest I give her some for her to contribute?

Dazed_and_C0nfused

Jaguar_Skills said:

Dazed_and_C0nfused said:

OH Pension of circa £40k but as she is not currently working, she is not currently paying in. We talked about the fact that if she does decide to go back to work, her money would probably go into her pension to balance things a bit.

Why isn't she contributing £2,880 each tax year she isn't earning?  She will still get £720 in basic rate tax relief.

Because she currently doesn’t have any money? Would you suggest I give her some for her to contribute?

Well it's certainly worth considering, particularly if things are unbalanced enough that she won't be able to make full use of her Personal Allowance in some tax years from age 57/58 onwards.

You would forever lose £2,880. 

In return she would have a pension fund of £3,600.  Courtesy of you and £720 from HMRC.

Jaguar_Skills

Dazed_and_C0nfused said:

Jaguar_Skills said:

Dazed_and_C0nfused said:

OH Pension of circa £40k but as she is not currently working, she is not currently paying in. We talked about the fact that if she does decide to go back to work, her money would probably go into her pension to balance things a bit.

Why isn't she contributing £2,880 each tax year she isn't earning?  She will still get £720 in basic rate tax relief.

Because she currently doesn’t have any money? Would you suggest I give her some for her to contribute?

Well it's certainly worth considering, particularly if things are unbalanced enough that she won't be able to make full use of her Personal Allowance in some tax years from age 57/58 onwards.

You would forever lose £2,880. 

In return she would have a pension fund of £3,600.  Courtesy of you and £720 from HMRC.

Thanks.  There’s not huge amounts leftover once I’ve factored all our holidays in etc and looking after the two kids!

do you think it would be better to put less in the ISA/LISAs and get her to do the pension contributions.  

We’ve also worked hard at using whatever she has earned to pay off our mortgage 

it’s hard to work out what is best!

Dazed_and_C0nfused

LISA is good but contributions to a relief at source pension generally beats an ISA for tax effectiveness as she will get 25% added to her contribution and can potentially take the whole lot without paying tax if she has spare Personal Allowance.

Given she has no firm plans to work this looks like the only option to build her pension up so she can use her Personal Allowance, particularly on the years between 57/58 and her State Pension age.

I'm assuming she is getting NI credits from claiming Child Benefit but if not that is another thing to look at as she should make sure she eventually gets the standard new State Pension, likely to be ~£10.5k/year from April 2023 🙂

Jaguar_Skills

Dazed_and_C0nfused said:

LISA is good but contributions to a relief at source pension generally beats an ISA for tax effectiveness as she will get 25% added to her contribution and can potentially take the whole lot without paying tax if she has spare Personal Allowance.

Given she has no firm plans to work this looks like the only option to build her pension up so she can use her Personal Allowance, particularly on the years between 57/58 and her State Pension age.

I'm assuming she is getting NI credits from claiming Child Benefit but if not that is another thing to look at as she should make sure she eventually gets the standard new State Pension, likely to be ~£10.5k/year from April 2023 🙂

Thanks for this.   I don't think she is entitled to any child benefit? 

I am slightly confused re the 25% added part in your message above, do you just mean because she can take 25% tax free?

Dazed_and_C0nfused

Jaguar_Skills said:

Dazed_and_C0nfused said:

LISA is good but contributions to a relief at source pension generally beats an ISA for tax effectiveness as she will get 25% added to her contribution and can potentially take the whole lot without paying tax if she has spare Personal Allowance.

Given she has no firm plans to work this looks like the only option to build her pension up so she can use her Personal Allowance, particularly on the years between 57/58 and her State Pension age.

I'm assuming she is getting NI credits from claiming Child Benefit but if not that is another thing to look at as she should make sure she eventually gets the standard new State Pension, likely to be ~£10.5k/year from April 2023 🙂

Thanks for this.   I don't think she is entitled to any child benefit? 

I am slightly confused re the 25% added part in your message above, do you just mean because she can take 25% tax free?

You originally posted this and I'd just assumed they lived with you both.

Aged 36, with two kids and a fiancée who doesn’t work.   

If they do and she isn't getting NI credits through work or other benefit claims then getting them from Child Benefit seems the sensible thing to be doing. Assuming she wants to get the standard new State Pension.  You can get NI credits without having to be paid the Child Benefit (assuming you don't want to improve your cashflow be getting it and then paying it all back via the HICBC).  But she would have to make a claim to start this process off.

There are two 25% elements with relief at source pension contributions.

First one relates to the tax relief.  If she contributes £2,880 then the pension company adds 25% (£720) courtesy of HMRC.  This makes a gross contribution of £3,600 (20% tax relief = £720).

When she comes to take the pension 25% can be taken as a tax free lump sum.  The remaining 75% is taxable income but may be taken without incurring a tax liability if she has unused Personal Allowances.

Dazed_and_C0nfused

You might want to look at this re Child Benefit

https://www.gov.uk/national-insurance-credits/eligibility

Jaguar_Skills

Dazed_and_C0nfused said:

Jaguar_Skills said:

Dazed_and_C0nfused said:

LISA is good but contributions to a relief at source pension generally beats an ISA for tax effectiveness as she will get 25% added to her contribution and can potentially take the whole lot without paying tax if she has spare Personal Allowance.

Given she has no firm plans to work this looks like the only option to build her pension up so she can use her Personal Allowance, particularly on the years between 57/58 and her State Pension age.

I'm assuming she is getting NI credits from claiming Child Benefit but if not that is another thing to look at as she should make sure she eventually gets the standard new State Pension, likely to be ~£10.5k/year from April 2023 🙂

Thanks for this.   I don't think she is entitled to any child benefit? 

I am slightly confused re the 25% added part in your message above, do you just mean because she can take 25% tax free?

You originally posted this and I'd just assumed they lived with you both.

Aged 36, with two kids and a fiancée who doesn’t work.   

If they do and she isn't getting NI credits through work or other benefit claims then getting them from Child Benefit seems the sensible thing to be doing. Assuming she wants to get the standard new State Pension.  You can get NI credits without having to be paid the Child Benefit (assuming you don't want to improve your cashflow be getting it and then paying it all back via the HICBC).  But she would have to make a claim to start this process off.

There are two 25% elements with relief at source pension contributions.

First one relates to the tax relief.  If she contributes £2,880 then the pension company adds 25% (£720) courtesy of HMRC.  This makes a gross contribution of £3,600 (20% tax relief = £720).

When she comes to take the pension 25% can be taken as a tax free lump sum.  The remaining 75% is taxable income but may be taken without incurring a tax liability if she has unused Personal Allowances.

I thought she wasn't entitled because of my earnings.   Maybe I need to check with our accountant. 

We do all live together, we are just lazy re marriage.  I am still not sure though re the child benefit and whether she can get this.  Hopefully our accountant can answer. 

Re her tax relief, she is the sole director of her own ltd company so would the £720 still apply?  Got it re the other part. 

Dazed_and_C0nfused

Jaguar_Skills said:

Dazed_and_C0nfused said:

Jaguar_Skills said:

Dazed_and_C0nfused said:

LISA is good but contributions to a relief at source pension generally beats an ISA for tax effectiveness as she will get 25% added to her contribution and can potentially take the whole lot without paying tax if she has spare Personal Allowance.

Given she has no firm plans to work this looks like the only option to build her pension up so she can use her Personal Allowance, particularly on the years between 57/58 and her State Pension age.

I'm assuming she is getting NI credits from claiming Child Benefit but if not that is another thing to look at as she should make sure she eventually gets the standard new State Pension, likely to be ~£10.5k/year from April 2023 🙂

Thanks for this.   I don't think she is entitled to any child benefit? 

I am slightly confused re the 25% added part in your message above, do you just mean because she can take 25% tax free?

You originally posted this and I'd just assumed they lived with you both.

Aged 36, with two kids and a fiancée who doesn’t work.   

If they do and she isn't getting NI credits through work or other benefit claims then getting them from Child Benefit seems the sensible thing to be doing. Assuming she wants to get the standard new State Pension.  You can get NI credits without having to be paid the Child Benefit (assuming you don't want to improve your cashflow be getting it and then paying it all back via the HICBC).  But she would have to make a claim to start this process off.

There are two 25% elements with relief at source pension contributions.

First one relates to the tax relief.  If she contributes £2,880 then the pension company adds 25% (£720) courtesy of HMRC.  This makes a gross contribution of £3,600 (20% tax relief = £720).

When she comes to take the pension 25% can be taken as a tax free lump sum.  The remaining 75% is taxable income but may be taken without incurring a tax liability if she has unused Personal Allowances.

I thought she wasn't entitled because of my earnings.   Maybe I need to check with our accountant. 

We do all live together, we are just lazy re marriage.  I am still not sure though re the child benefit and whether she can get this.  Hopefully our accountant can answer. 

Re her tax relief, she is the sole director of her own ltd company so would the £720 still apply?  Got it re the other part. 

There is no earnings limit which prevents entitlement to Child Benefit (or the associated NI credit).

Some people prefer not to be paid the actual benefit as having adjusted net income of £60k or more means you have to pay it all back via the High Income Child Benefit Charge.

But she seems to be missing a trick there re the NI credits.

If she makes personal contributions to a SIPP or personal pension then yes she would get the £720.  But maybe this is one for your accountant as there may be other factors which are relevant given the sudden mention of her being a director!  It might not be the best way to get money into her pension if the company is trading.