Mortgage/pension

Hertsclarets

Just looking for advice on whether my thoughts are firstly possible and then a good move. So my partner and i have preserved RTB on a property. Value is estimated around 280k. Discount is 102k so we would be looking around 178 to buy. I have around 120k from a previous property sale and would use around 100k and then mortgage the balance. I am 56 and have a mix of pensions,a legacy final salary from former employment,a Local Government pension from my current employer and a SIPP with  around 70k balance. 

My question is if we used the RTB discount as deposit and then morgaged the balance,I could pay 50k into my SIPP this tax year and another 50k next tax year, I am a higher rate tax payer so will get 40% tax relief so the input to my pension will be around 150k? My CETV was 260k 2 years ago so with growth and the 150k will make it around 430k. I can take 25% of this tax free so 107k, basically my contribution back plus 7k and pension boosted by 43k. I can then put the 107k into an instant access account and use that to pay the additional mortgage cost without impacting on my income. The plan for the mortgage is 11-12 years and then overpay to clear it quicker. 

Good idea and feasible? I am sure there are drawbacks that I am not aware of so anyone with knowledge, advice gratefully received. 

Mark_d

The input to your pension will be 60k each year.  The higher rate tax relief means you'll get 10k cash back each year.

I wouldn't take the 25% tax free cash.  I think you're better off with a larger income during retirement.

Hertsclarets

Mark_d said:

The input to your pension will be 60k each year.  The higher rate tax relief means you'll get 10k cash back each year.

I wouldn't take the 25% tax free cash.  I think you're better off with a larger income during retirement.

The issue with doing this is that it leaves a mortgage of 178k with my capital tied up in a pension fund, greatly increasing my monthly outgoings without the safety net of available capital. 

TheSpectator

What are your actual earnings? 

Hertsclarets

Circa 52k this tax year

TheSpectator

Hertsclarets said:

Circa 52k this tax year

In which case, it's unlikely you can pay £50k into a SIPP anyway. Also, you do realise that you only get higher rate relief to the extent of actual tax paid at higher rate. You are not far over the higher rate threshold and depending how your existing pension contributions are paid your taxable pay may well be under the higher rate threshold.

Much more info is needed.

dunstonh

Pension contributions are treated as gross, even if you get tax relief.   So, a pension contribution of £50k would cost you £40k.      

Hertsclarets

TheSpectator said:

Hertsclarets said:

Circa 52k this tax year

In which case, it's unlikely you can pay £50k into a SIPP anyway. Also, you do realise that you only get higher rate relief to the extent of actual tax paid at higher rate. You are not far over the higher rate threshold and depending how your existing pension contributions are paid your taxable pay may well be under the higher rate threshold.

Much more info is needed.

Thank you for the information.  My existing pension contributions are PAYE into my local government scheme which are £240 per month.  Guessing this drops my taxable pay below the 40% threshold?  From what I am reading my initial thoughts are wrong and are probably not a workable solution.