Raising 60k on mortgage to start a SIPP

AircraftHandler

Hi all,

We have 38k on our mortgage and our property is worth 325k. 

I have been thinking about opening a SIPP for when I’m 60, currently 39. I’m thinking about taking out 60k additional borrowing on our mortgage to start a SIPP. 

Does anyone have any advice on this?

Any help would be greatly appreciated. 

Regards 

Dazed_and_C0nfused

AircraftHandler said:

Hi all,

We have 38k on our mortgage and our property is worth 325k. 

I have been thinking about opening a SIPP for when I’m 60, currently 39. I’m thinking about taking out 60k additional borrowing on our mortgage to start a SIPP. 

Does anyone have any advice on this?

Any help would be greatly appreciated. 

Regards 

Do you have pensionable earnings of £60k in the current tax year?

Have you factored in your existing pension contributions (and any employer contributions)?

AircraftHandler

Hi,

I have not made any pension contributions at all. 

I have inherited 4 properties from my parents who have passed, and I declare an income of £12500 from the Ltd Co. 

My husband currently works in Norway and pays Norwegian tax and we use his wage as income proof for the mortgage. 

Regards 

Dazed_and_C0nfused

AircraftHandler said:

Hi,

I have not made any pension contributions at all. 

I have inherited 4 properties from my parents who have passed, and I declare an income of £12500 from the Ltd Co. 

My husband currently works in Norway and pays Norwegian tax and we use his wage as income proof for the mortgage. 

Regards 

In that case I'm not sure why you think you can add £60k to a SIPP?

Have you spoken to your accountant about the potential for additional employer contributions?

AircraftHandler

This is why I’m asking questions before I goto my accountant. 

What are my options?

Marcon

AircraftHandler said:

This is why I’m asking questions before I goto my accountant. 

What are my options?

The most you can contribute personally (gross) is £12,500 per tax year if that's the salary you receive as an employee of your limited company and you want to benefit from tax relief.

How much can your company afford to contribute to a SIPP on your behalf? 

Do you have any existing pension arrangements? Sounds not, from what you've said above, but just checking.

You might benefit from some proper financial advice (not just input from your accountant), since the picture you're painting here is a bit muddled: you've inherited 4 properties, you are thinking of increasing your mortgage on your own property, you want to borrow to put money into a SIPP... There's plenty of scope for someone to give you advice, but it needs to be based on a full understanding of your position, not just a couple of lines on a public forum.

Exodi

One of the biggest benefits of a pension is that you receive tax relief on the money going in, and you are then taxed on the money going out (as well as the TFA).

The aim for a lot of people is receive tax relief at a higher rate than they'll pay taking it out (e.g. a higher rate tax payer getting 40% tax relief now, with the intention to take it out at 20%).

You can't get tax relief on money you haven't been taxed on through your wages.

You might be able to do this as an 'employer contribution' (so tax relief is not claimed) but then one might question the point. You're taking money you would have in your pocket free of tax - and putting it in a vehicle that is (mostly) taxable when withdrawn. It might make much more sense to put the money in a S&S ISA, then the money remains tax-free when you take it out in the future.

That said, I'm not a fan of the idea of borrowing against your house to invest in a SIPP/S&S ISA. Personally I'd focus on paying off your mortgage (not long to go by the sounds of it) and then using all of the extra cash you save from the mortgage payment every month towards retirement.

saajan_12

AircraftHandler said:

This is why I’m asking questions before I goto my accountant. 

What are my options?

Well what are are you trying to achieve? 

- If you can afford to repay the extra 60k mortgage, then just direct that money each month to a SIPP instead and build it up slowly. 
- If you're trying to save income tax, then you're not really paying much anyway currently and may well pay more during retirement (if you have an Ltd company that's building up income etc)
- If you're trying to borrow to invest, hoping the return will be higher than the interest cost, then that's a risky choice particularly into retirement when most SIPPs change their holdings to be more bonds and interest rather than riskier equities. 

Albermarle

You can't get tax relief on money you haven't been taxed on through your wages.

The amount of tax relief you can get is based on your gross income, even if you have not actually paid any tax on it.

Exodi

Albermarle said:

You can't get tax relief on money you haven't been taxed on through your wages.

The amount of tax relief you can get is based on your gross income, even if you have not actually paid any tax on it.

Sorry, clumsily worded, you're right - the best example is people getting tax relief on income they might not have strictly paid tax on due to the personal allowance.

Maybe 'you can't get tax relief on income you haven't received' would have been better.

dunstonh

Does anyone have any advice on this?

Are you mad?

I have inherited 4 properties from my parents who have passed, and I declare an income of £12500 from the Ltd Co. 

Making employer contributions from the limited company is certainly a good idea.   And if you already have a pension, you can make £60k a year and use carry forward for 3 years (as long a pension existed back then).   However, you would have to look at your profit to ensure there is enough to get corporation tax relief.

As it stands we have too little info but borrowing to invest is extremely high risk and unlikely to be a sensible option.   Making employer contributions from the limited company is very sensible as its one of the most tax efficient ways of getting money out of the company (reduces corporation tax and no income tax, NI or dividend tax and when you do eventually draw on the pension, then you only suffer an effective 15% income tax if you are a basic rate taxpayer (assuming personal allowance has already been used in full elsewhere)