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[LC0112G]

If you're saying what it sounds like you're saying (personal allowance reduction?) then you need (paid for) professional financial advice from an IFA, not the ramblings of some nutters on an obsolete car forum.

That is indeed what I'm saying (in fact, my allowance is now roughly negative £8000) - I went to see a local tax advisor whose advice was (in summary):

"You're a PAYE employee, so you're screwed. You could salary sacrifice, but you'll still take home less each month."

Thankfully he didn't charge me for that advice...


Still, I went to bed last night as my employer announced 230 redundancies (~5%) worldwide and, internally, sent an email that read (I'm paraphrasing): "We are making 230 people redundant across all departments, and closing our Lowell office. Those affected will find out soon, and those affected in EMEA will find out in the next few weeks"

Which I thought was a thoroughly shitty way to tell people!

So y'know. Maybe my salary will drop to 0 soon. Maybe it won't. I get to play a fun waiting game!

Bummer. However, I'd still be making hay whilst the sun shines. It only costs you £40 from your pocket to put £100 into your pension. If the govt are stupid enough to come up with these daft effective marginal rates, then you may as well take advantage of them. Your future self will thank you.

[LC0112G]

SWMBO has her own company so not much advantage in stacking her pension. Instead we'll use that in our 50's to make sure we don't pay any (or much) tax on income in our later middle age.

See an accountant. Tomorrow. Or sooner if possible.

Pension contributions from a company are an allowable business expense. They come off the 'profit' before any corporation tax. You can dump up to £40K of profit into her pension plan per year tax free, and carry forward the past 3 years allowance too. So she could extract up to £160K of profit from the company into her pension scheme tax free. There is no cheaper way to extract money from the company, or fund her retirement.

That assumes she is not subject to the money purchase annual allowance

She can't be subject to that unless she is 55 or older, and the OP said "Instead we'll use that in our 50's ...", so I assume she'd not yet 50. Assumptions are dangerous though.

....and does not and has not for the carry forward years had adjusted income above £150k else the reduced annual allowance applies

True, but I did also say "See an accountant. Tomorrow. Or sooner if possible." IMV anyone with a salary approaching £100K should be paying for professional advice on how to legally minimise their tax liabilities.

[LC0112G]

See an accountant. Tomorrow. Or sooner if possible.

Pension contributions from a company are an allowable business expense. They come off the 'profit' before any corporation tax. You can dump up to £40K of profit into her pension plan per year tax free, and carry forward the past 3 years allowance too. So she could extract up to £160K of profit from the company into her pension scheme tax free. There is no cheaper way to extract money from the company, or fund her retirement.

To be fair, I wasn't aware of that, but while ever we aren't making my pension to £40k p.a. I think it would be better to add more to mine. My effective rate is 40%, plus some NI, hers rather less. SWMBO'S Company runs about £45k as PBT and sadly, we need all of it ATM.

I scraped my ACA tax exams, so as soon as we have any spare income, I can assure you I'll be seeking some good advice! 

In simple terms. Suppose SWIMBO's company makes £1K gross profit. There are 3 (legal) ways of getting the money out of the company and into her 'pocket'.

1) Salary. Employers NI is 13.8%, Employees NI is 12% and Income tax is 20%. So once all that is paid, from the original £1000 she only gets about £620 in her pocket.

2) Dividends. Corporation tax is 20%, and personal dividend tax is 7.5%. Once that is paid, she gets £740 in her pocket.

3) Pension. No taxes - all £1000 can go straight into the pension.

It's a bit more complicated than that since NI, Income Tax and Dividend Tax have various allowances and limits, but that's the jist of it.

What about using an MVL and claiming entrepreneur allowance?

That's shutting the company down, and paying 10% tax on any resultant capital gain? Not much use for an on-going company?

And 3 misses the point that normally 75% of the fund is drawn and taxed as income.  So taking that into account if you could use the MVL and entrepreneur allowance that might be better

Again, this falls into the take professional (paid for) advice category. If you're a basic rate (20%) tax payer in retirement (income less than £45K ish) then the 25% tax free means the effective tax rate is 15% on pension income - and that's after you've used up all you 0% personal allowance (£11850). If you're a 40% or higher rate tax payer now, then £11850 @ 0% and 15% on the remainder on the way out is pretty good compared to 40% on the way in. And if you take into account 2% eeNI and 13.8% erNI it's more like 55% saving on the way in.

[aaronjb]

Bummer. However, I'd still be making hay whilst the sun shines. It only costs you £40 from your pocket to put £100 into your pension. If the govt are stupid enough to come up with these daft effective marginal rates, then you may as well take advantage of them. Your future self will thank you.

I just can't afford to (take an effective drop in take-home) at the moment, but once I dispose of some liabilities, that's exactly what I'll do.. crank up the salary sacrifice as far as I can.

Y'know, assuming I still have a job!

[2boxerdogs]

Fortunately I took the advice of an employer when very young, " make sure you have a good pension"so have forces pension NHS pension ,+ civil service pension from HMPS so will be fine wifey has her state pension + her one from 30 years in education , my advice nowadays would be put your money into property nowadays rather than into a private pension, we did this with an inheritance in 1987 & have never been better off financially.

[LC0112G]

SWMBO has her own company so not much advantage in stacking her pension. Instead we'll use that in our 50's to make sure we don't pay any (or much) tax on income in our later middle age.

See an accountant. Tomorrow. Or sooner if possible.

Pension contributions from a company are an allowable business expense. They come off the 'profit' before any corporation tax. You can dump up to £40K of profit into her pension plan per year tax free, and carry forward the past 3 years allowance too. So she could extract up to £160K of profit from the company into her pension scheme tax free. There is no cheaper way to extract money from the company, or fund her retirement.

To be fair, I wasn't aware of that, but while ever we aren't making my pension to £40k p.a. I think it would be better to add more to mine. My effective rate is 40%, plus some NI, hers rather less. SWMBO'S Company runs about £45k as PBT and sadly, we need all of it ATM.

I scraped my ACA tax exams, so as soon as we have any spare income, I can assure you I'll be seeking some good advice! 

Something else to consider. You both have a 0% personal allowance of (currently) £11850. If/when you get to 55 and decide you've had enough and want to retire then it is poor planning for one partner to have all the pension income. Take the following scenarios...

1) You have a big pension pot (£1M) and SWIMBO has zero. You take out (say) £40K per year. £11850 is tax free, the rest taxed at 20%, so you'll pay £5630 in tax.

2) You both have similar pension pots (£500K each). You both take out (say) £20K per year. £11850 each is tax free, the rest taxed at 20%, so you pay £1630 tax each, £3260 total.

If you want to retire before state pension age (67..70?) you should try to ensure that SWIMBO's pension pot is big enough to produce a sustained minimum of £11850 per year so that she uses all her tax free personal allowance in retirement. That means the pot size needs to be about £300K if you both want that world cruise at 55. At 67-70 the state pensions kick in so you can then adjust things, and live a life of luxury (and pray comrade Korbyn doesn't get in).

[aaronjb]

Ah, but what if they split the income into two pension pots, and then they get divorced?

</eternal pessimist>

[LC0112G]

Fortunately I took the advice of an employer when very young, " make sure you have a good pension"so have forces pension NHS pension ,+ civil service pension from HMPS so will be fine wifey has her state pension + her one from 30 years in education, my advice nowadays would be put your money into property nowadays rather than into a private pension, we did this with an inheritance in 1987 & have never been better off financially.

Common mistake. Illiquid asset, high running costs, heavily taxed, lower returns than the stock market.

You need somewhere to live, so yes buy a house you're happy to live in. But there are better, safer ways of making more money.

[LC0112G]

Ah, but what if they split the income into two pension pots, and then they get divorced?

</eternal pessimist>

They'll do that anyway if they get divorced. Starting point is a 50-50 split of all assets including pensions.

[Doctor Gollum]

What are your thoughts on Mutual funds?

[2boxerdogs]

Fortunately I took the advice of an employer when very young, " make sure you have a good pension"so have forces pension NHS pension ,+ civil service pension from HMPS so will be fine wifey has her state pension + her one from 30 years in education, my advice nowadays would be put your money into property nowadays rather than into a private pension, we did this with an inheritance in 1987 & have never been better off financially.

Common mistake. Illiquid asset, high running costs, heavily taxed, lower returns than the stock market.

You need somewhere to live, so yes buy a house you're happy to live in. But there are better, safer ways of making more money.

. 

Not my experience, but maybe I am just lucky mortgage free by 33 years of age & in the process of buying our 5th property for cash..

[aaronjb]

Not my experience, but maybe I am just lucky mortgage free by 33 years of age & in the process of buying our 5th property for cash..

Jeebus! Teach us your ways, oh master?

(Not even kidding, although I know precisely where I've been going very wrong for a great number of years, I still can't imagine being mortgage free by 33.. that's 6 years ago )

[Viral_Jim]

Ah, but what if they split the income into two pension pots, and then they get divorced?

</eternal pessimist>

They'll do that anyway if they get divorced. Starting point is a 50-50 split of all assets including pensions.

This has been discussed as a useful way to move pension savings ( and avoid3% stamp on a second house if the rules don't Change),

[aaronjb]

Ah, but what if they split the income into two pension pots, and then they get divorced?

</eternal pessimist>

They'll do that anyway if they get divorced. Starting point is a 50-50 split of all assets including pensions.

This has been discussed as a useful way to move pension savings ( and avoid3% stamp on a second house if the rules don't Change),

Divorce? That seems extreme!

[2boxerdogs]

Not my experience, but maybe I am just lucky mortgage free by 33 years of age & in the process of buying our 5th property for cash..

Jeebus! Teach us your ways, oh master?

(Not even kidding, although I know precisely where I've been going very wrong for a great number of years, I still can't imagine being mortgage free by 33.. that's 6 years ago )

.


All started by moving from South London to Norfolk in 1987 all simple sell high buy low improve & sell again did everything at the right time made a lot of cash but could have done even better looking back, but still in a very good position now. It just gave a buzz making a profit so easily & still does our latest one needs around £15,000 spending on it will easily be worth £40- £45,000 more within months but it has my dream double garage at last so may stay put maybe 😉