High tax payer for free child care

Simon11

Gobigorgohome said:.

Thank you for responding. My priority has been to reduce the mortgage (which still is), currently just under £500k. I am 50 and cannot retire until my mortgage is paid off as i would not be able to afford it.

We are limited by information here (mortgage interest rate, your pension sizes, ect), but it may not be the best financial decision long term? (Although it may make you feel better/ more secure!)

Mortgages are one of the cheapest forms of borrowing and I assume yours is under 5%?

You will gain far more wealth if you increased your pension contributions and reduce your income from £100k to £65k to take full advantage of the £60k pension limit. On paper you are reducing your salary by £35k but at 40% tax it’s only costing £21k. Then factor that you could claim child benefit £1-2k and then your pension investment should grow more than 5% p.a. out pacing your mortgage rate.

Then when you claim your pension, you can take 25% out tax free and you can use this to pay off the mortgage.  Could well be better off doing it this way.

Lots to consider!

BlackKnightMonty

Simon11 said:

Gobigorgohome said:.

Thank you for responding. My priority has been to reduce the mortgage (which still is), currently just under £500k. I am 50 and cannot retire until my mortgage is paid off as i would not be able to afford it.

We are limited by information here (mortgage interest rate, your pension sizes, ect), but it may not be the best financial decision long term? (Although it may make you feel better/ more secure!)

Mortgages are one of the cheapest forms of borrowing and I assume yours is under 5%?

You will gain far more wealth if you increased your pension contributions and reduce your income from £100k to £65k to take full advantage of the £60k pension limit. On paper you are reducing your salary by £35k but at 40% tax it’s only costing £21k. Then factor that you could claim child benefit £1-2k and then your pension investment should grow more than 5% p.a. out pacing your mortgage rate.

Then when you claim your pension, you can take 25% out tax free and you can use this to pay off the mortgage.  Could well be better off doing it this way.

Lots to consider!

I would love to do this. But like the OP also have a big mortgage; as well as private school fees. My own choices I know. But with mortgage also going up, and the VAT in school fees, it will become more challenging. Cry me a violin I know…

Simon11

BlackKnightMonty said:

I would love to do this. But like the OP also have a big mortgage; as well as private school fees. My own choices I know. But with mortgage also going up, and the VAT in school fees, it will become more challenging. Cry me a violin I know…

Even with a big mortgage, its one to consider! Will likely end up needing to work for longer if you focus more on the mortgage than the pension.

I have a similar sized mortgage to the OP, so really appreciate what it feels like. I am however very [very bloody] lucky that I am still on a very low interest rate for another 1.75 years so yet to really cut our cloth due to rates going up.

When the time comes in 2026, we will have to review our financial strategy and assume Labour will throw in a few curve balls which impact that too.

Simon11

Gobigorgohome said:

Hi,

I currently earn £125k and add £750pm to my pension. I am looking at increasing pension contribution to £2100pm to bring me down to just under £100k earning. The reason I want to do this in order to qualify for free 15h for childcare. 

Would it work? I am a bit confused if that would mean that my salary is under £100k or would it not make any difference 

Forgot to mention- as well as being able to apply for free 15 hour childcare, after getting under £100k earnings, it also means you are eligible for Tax-Free Childcare (saving 20% of any remaining childcare costs!).

Gobigorgohome

Thanks. I’ve applied for tax free childcare but it is pending the decision. Do you know if they can reject it?

Jonboy1889

I’m not sure if you’re talking about “free from 3” which is available to everyone irrespective of income, or the extra 15 hours on top of that.

you can get tax free childcare (and anything else above 15 hours) as long as your partner (if you have one) works more than 15 hours a week, and you earn <£100k like you’ve said 

Gobigorgohome

Jonboy1889 said:

I’m not sure if you’re talking about “free from 3” which is available to everyone irrespective of income, or the extra 15 hours on top of that.

you can get tax free childcare (and anything else above 15 hours) as long as your partner (if you have one) works more than 15 hours a week, and you earn <£100k like you’ve said 

It is the free 15 for 2 year old and tax free childcare that I’d like to get but I currently earn over 100k. I’ve requested to increase my pension contribution now and applied on gov for these but so far it is pending so not sure if it will get approved