Long term planning - reduce tax bill

mither_2

Hi,

Is there anything further that I can do to further reduce tax charges? Currently I do the following:
Put the max £60k per annum into my workplace pension

Use my full £20k per year ISA allowance

Give my wife any spare cash to put into her ISA

Put the maximum £9k p/a into my chidren's ISAs. The idea being that they can have this money when they turn 18. We had them quite late in life (in my mid 40s) and so i'll be into my 60s when this happens.

The downside that i see to this are that we may need to access this money sooner and wouldn't be able to. However, we have money set aisde for emergencies and set money aside each months so we think this shouldn't be necesary.

Is there anything further than we can do to reduce our tax bill?

Our situ is that I have a well paid job. My wife's incoem is relatively low and she is going to work less, and reduce her income further, because child care costs for two children mean that she is no better off working and she would prefer to spend time with the kids anyway. As i earn over £100k we are not eligible for any free childcare.

We are very fortunate in that we don't have a mortgage and don't have an expensive lifestyle and prefer to save money for the kids and also so that i can potentially retire early.

Tried seeing financial advisors but they didn't offer much help re tax and seemed much more interested in advising on share portfolios that I should put my money in whereas my approach has always been to just put the money into as imple low fee tracker and just leave it there.

Anything I've missed?

Smudgeismydog

You haven’t mentioned your wife’s pension provision, does she have scope to make/increase contributions?

Albermarle

You seem to be doing all the standard things and you seem to be doing well generally. So I would not worry too much about paying tax, it is just part of life.

Alternatively you could get involved in areas like venture capital, SES etc. although quite risky.

mither_2

https://forums.moneysavingexpert.com/discussion/comment/81979705#Comment_81979705

She makes minimal pension contributiosn. I have been encouraging her to make more contributions but her slary is quite small already adn so she would hardly have any income if she did so.

Is there a tax efficient way that I can put more money into her pension?

mither_2

It is and I feel like i pay my fair share and so am not complaining. However, I would prefer to put more away for a rainy day and have less taxed and spent. I'm in my 40s now and don't expect there to be a universal state pension by the time I get to 68 or 70 of whatever the retirement age will be.

mither_2

https://forums.moneysavingexpert.com/discussion/comment/81979854#Comment_81979854

It is and I feel like i pay my fair share and so am not complaining. However, I would prefer to put more away for a rainy day and have less taxed and spent. I'm in my 40s now and don't expect there to be a universal state pension by the time I get to 68 or 70 of whatever the retirement age will be.

Albermarle

Is there a tax efficient way that I can put more money into her pension?

Yes you can give her money to put in her pension- or she uses your money as her income, and puts all her earned income in a pension ( same difference). Of course she will be limited as to how much she can add by her salary . Max she can add is her gross earnings income . So if she earns £10K- she can add £8K and £2K tax relief . If she is paying her workplace pension contributions via salary sacrifice, there will be an issue if contributions take her below the minimum wage. In that case she would need to open up a new personal pension as well.

 I'm in my 40s now and don't expect there to be a universal state pension by the time I get to 68 or 70 of whatever the retirement age will be.

This is a regular comment on this forum, and people now getting their state pension were saying the same 25 years ago.

Firstly the state pension is here to stay, as any political party in Govt would be heading for political oblivion if they stopped it- so they won't. You might be aware of the political furore and eventual U turn over the Winter Fuel payment, which for most pensioners is only worth £100 a year. The Triple Lock on the state pension, is widely acknowledged to be too expensive to keep long term. However it is guaranteed that all main political parties ( maybe not the Greens) will have keeping it in their manifestos. Older people vote in larger numbers than younger people……

There is a possibility of means testing, but as the state pension is taxable, many richer pensioners pay 40% tax on it already, whilst poorer pensions pay little/no tax , so it is already means tested indirectly.

mither_2

https://forums.moneysavingexpert.com/discussion/comment/81980067#Comment_81980067

Thanks. Good points there. We have discussed my paying for everything so that my wife can put as much as possible into her private pension, thus building a pension and reducing her tax liability but need to do this more.

Is there anything esle that I've missed.

I'm aware of venture capital etc but I'd need to try and understand it better before getting involved and don't really have the time for that. The whole industry seems to get a lot less coverage now than it did 10 -15 years ago. Is it just not that prevalent?

Noted regarding wealthier pensioners paying 40% tax on their pensiosn but how widely is this tax actually enforced? I can still se a scenario when wealthier retirement age people have to apply for a pension and justify a need rather. Maybe I'm just overly pessimistic about the long term state of the economy and our ability to pay pensions on top of all the other benefits.

DRS1

Probably not a good time to be thinking of venture capital trusts as the tax relief on subscriptions has just been reduced from 30% to 20%.

Albermarle

We have discussed my paying for everything so that my wife can put as much as possible into her private pension, thus building a pension and reducing her tax liability but need to do this more.

Paying into a pension does not reduce your tax liability as such, it is more about getting tax relief paid into your pension. She could add more to her workplace pension or a personal pension, but as she is reducing her hours further, her reduced income will limit how much she can add to either of course.

Regarding venture capital and similar schemes. Once you have exhausted all conventional avenues for reducing tax- pensions, ISA's etc then you are left with more exotic areas. It is not something I know that much about to be honest. I did look into SES, but seemed to be a lot of admin and potential issues involved.

Seed Enterprise Investment Scheme (SEIS)

With tax on pensions, it works just the same as when you are employed. Your taxable income from all sources ( state pension, personal/ex workplace pension/ any employment earnings/savings interest/rental income, dividends etc etc) is added together. You get a personal allowance the same as when working. Then income tax is charged accordingly on the remainder.

The SP itself is not directly taxable, they just take more from your other income to compensate. So no avoiding 40% tax if you have a high enough income.

ouraggie

If your wife earns below £12,570 pa, you can transfer some of your wife’s personal tax allowance to yourself. Only a small saving, but every little helps as they say.