Listener Questions – Episode 43

Questions Asked

• Question 1
  Hi Pete and Roger

  I’m late to investing but thanks to your informative and entertaining podcasts and books – I feel on track to at least a decent retirement.

  I’m on a £60K salary and currently manage to contribute around £25K annually via salary sacrifice – which keeps me happily and comfortably within the 20% Income Tax bracket.

  However, with the Salary Sacrifice Cap coming in April 2029, I will end up in the higher-rate tax bracket.

  I was thinking about using my employer’s Car Benefit Salary Sacrifice Scheme to help bring down my taxable income – whilst still maintaining the maximum salary sacrifice and utilising Relief at Source my AVC.

  I’m fully aware of the saying “don’t let the tax tail wag the investment dog” but I was planning on getting a car in 2029 – when my mortgage is completed – so this might be a good alignment.

  My question’s are: Can you confirm whether the Salary Sacrifice Cap applies to pensions only — and does using the car salary sacrifice scheme seem like a sensible idea in this context?

  Is there anyway that paying into my AVC via Relief at Source and claiming the higher-rate relief via Self-Assessment would result in HMRC issuing me a new tax code for the following tax year.

  Keep up the good work – and all the best to you and your families for the festive season.
  Thanks, Cris

• Question 2
  Hi, I recently came across your podcast and have not stopped listening to all the older episodes, and look forward to the new ones each week. Keep up the great work!

  I’m a 53 year old business owner looking to exit my business within the next 3 years via a sale and hope to receive around £1.5 – £1.8m from my share of the proceeds after tax.

  My wife is 8 yrs younger than me and will probably still be working doing some consultancy work. She has her own pension and savings in ISA’s (currently a combined pot of around £250k which will hopefully grow over the next 10+ years) but we wouldn’t need to access that till much later as required.

  My 2 questions are:
  1. What would be the best way to invest the lump sum from the sale of my business to provide an income to support my retirement without having to necessarily eat into the capital or touch too much of my savings / pension early on as it will need to provide for my wife and I for quite a few years if we retire / semi retire in our mid 50’s.
  Having looked at our living costs we would need around £60k p.a – albeit to live comfortably. Any holidays / large purchases etc could be funded through savings.

  2. How would you prioritise what pot of funds you use first to make it the most tax efficient, enable growth and ensure that the pots do not run out. Given the new IHT rules on pensions is it now wise to use those first including the 25% tax free lump sum or use the ISA’s / savings first leaving the pensions to continue growing in their tax wrapper.

  Thanks, Jeremy

• Question 3
  Hello Peter and Roger
  You answered a previous question for me on the podcast so thank you for that, and I hope you don't mind me asking another one!

  We're in the very fortunate position of being able to pay the full £60,000 annual allowance into my pension scheme this tax year and are considering making additional contributions using unused allowance from previous years.  I understand that the total contribution we could make would still be limited by my annual salary this tax year – my question relates to how that is defined.

  The contributions are made using a combination of salary sacrifice into my work scheme and lump sum contributions to my SIPP which is separate from the work scheme.  So, would my “salary” that would be the limit for total contributions be the salary before salary sacrifice or after?  And is the “salary” further reduced by the contributions to the SIPP, as I believe my adjusted net income for calculating tax bands is?

  Perhaps some hypothetical numbers would help.  Let's say my gross salary before salary sacrifice is £125,000 and I salary sacrifice £25,000, and my employers' contribution is £5,000.  Let's say I also pay £24,000 by bank transfer into my SIPP, so I'd receive £6,000 of tax relief into the SIPP.  If I've understood it correctly, my adjusted net income for tax purposes would be £70,000 (which is £100,00 salary after salary sacrifice minus £30,000 gross contribution to SIPP).  In total, £60,000 has been paid into my pensions which is the full annual allowance for this year.

  If I had £120,000 of unused pension allowance from the previous three tax years, what is the maximum additional amount I could pay into my SIPP this tax year?  Is it £65,000 gross (so £52,000 net), to bring the total paid into my pensions up to £125,000, my pre-sacrifice salary?  Or £40,000 gross (so £32,000 net), to bring the total paid into my pensions up to £100,000, my post-sacrifice salary?  Or some other amount, if the salary that counts for this year is limited to the adjusted net income?

  Thanks so much for your help – I know it's a bit technical but I can't seem to find the answer anywhere!
  All the best, Fran

• Question 4
  Dear Pete and Roger,

  I’ve been listening to the podcast for years now, and it always makes my Wednesday commute more enjoyable. Every time I hear your names together, I think of The Who, so thanks for all you do, helping people of My Generation become Finance Wizards and make smarter decisions so we don’t get Fooled Again.

  I’m 34, and after working in the small charity sector since university, I’ve accepted a role in a larger organisation which comes with a significant pay increase, taking my income over the Higher Rate threshold.

  As I step into this new tax band, what reliefs, allowances, or financial planning considerations should I be thinking about?

  In particular, I’m aware there are some reliefs (particularly for Gift Aid donations and pension contributions) that I will be able to claim through self assessment; do they ‘compete’ with each other in any way, or can I claim the full relief on both?

  Thanks for all you do, Tim

• Question 5
  Pete & Roger
  Great podcast – don’t ever retire!

  I’ve just started receiving my state pension (now you know how old I am) but I was wondering how I can check that the government are paying me the correct amount.

  I have more than a full set of NI class 1 contributions but I’ve also had some years contracted out and some years working abroad in a country with a reciprocal arrangement with the UK (which I’ve claimed for). The government just sent me a statement telling me how much I would get paid without any detail behind it.

  How can I check that they have made the correct deductions for contracting out and the correct additions for my time abroad?
  Call me cynical but I don’t always trust the government to get these calculations right.
  Many thanks, Glen

• Question 6
  Hi,  great show by the way, very informative, it has certainly helped me and I’m sure is great help to many others.

  My wife Michelle is planning to retire at the end of March, age 58.5.  She is self employed, a relatively low earner and finds the work tiring now. I myself am 56 soon and likely to work another 2 year (max), I am luckily enough to receive a decent salary and have above average pension provision.

  Michelle has the following pension savings –  £143k in bank savings (not isa), £130k S&S ISA, £118k SIPP – all combined £391k. I realise markets are high at the moment.

  Plan to use 4% rule and reduce when State Pension kicks in (have full NI Contributions).

  So assuming want £15k pa (and rise annually with inflation), my query (that many others may have) is it best to use the cash or the ISA or the SIPP first or mix it up?  Michelle is very unlikely to have to pay income tax, until State Pension triggers at 67.

  Any advice much appreciated, Jason

Send Us Your Listener Question

We’re going to spin out the listener questions into a separate Q&A show which we’ll drop into the feed every 2-3 weeks or so. These will be in addition to the main feed, most likely, but they’re easier for us to produce because they require less writing! Send your questions to hello@meaningfulmoney.tv Subject line: Podcast Question

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Listener Questions – Episode 42

Questions Asked

• Question 1
  Hi Pete and Roger,

  Thank you for your amazing podcast!
  My question is about budgeting & savings percentages:
  Should you aim for a % of your gross pay or your net pay when it comes to aiming for a savings percentage? e.g. Invest 20% of gross or net?

  I'm self employed and work contract to contract. From each contract payment I have to give 25% to agents and lawyers. Then I get paid the rest and have to put aside some of the money ready for the Tax man.

  When planning for how much I should save / invest from each contract payment should I be putting aside:
  20% of the original contract amount? (which would be prior to the agents taking their cut and prior to the tax man taking his cut?)
  20% of the amount left after the agents but prior to the tax man?
  Or 20% after both the agent cut and tax man cut?
  Thank you! Isabel

• Question 2
  I am a 70 year old widow with no children.  My current net worth is about £2 million. This is made of of a house (£500,000), savings and investments (£1,150,000) and a drawdown pension pot of £350,000 which I inherited from my husband.  My husband died aged 68 so the pension pot is currently tax free.

  I plan to leave our inheritance tax free allowances of £650,000 to family, mostly nephews and nieces and the reminder to charities.  The drawdown pension will also go to named family members until the rules change in 2027 after which this will also go to charity.   I understand that this would mean my estate wouldn’t be subject to inheritance tax.  Am I right about this? Is there anything I might not have thought about or any flaws in my thinking?

  Thank you for your very informative podcast,
  Susan

• Question 3
  Hi Pete and Roger,

  I’m still catching up on the back catalogue and am still loving the show, the listener questions are a great alternative, absolutely brilliant

  My mind has been wandering as it usually does, and this time thinking about my retirement plan and what dividends will look like at retirement. I have some queries I would love you to clarify please if possible.

  As it stands I have a combination of SIPP and stocks & shares ISAs all globally diversified with various stocks and ETFs etc and also a NHS DB pension. I’m about to turn 49 and planning on a retirement at around 60. I’m trying to plan in the most tax efficient way (obviously this may change with future governments). For now though I am trying to max out my ISAs regularly for the tax free benefits and in particular focussing on a goal of using global ETF high yield dividends as income annually at retirement. I have a Vanguard SIPP with 3 ETFs. I plan to take the 25% tax free amount from this when I retire. The rest (75%) I plan to leave as is, in the same ETFs and as they will hopefully still be paying dividends, I am a little confused as to how these will be regarded, such as for tax purposes? My assumption is the dividends will be added as cash to my now 75% remaining pot and then if I start to drawdown on this then I guess I will be taxed as normal depending on my tax status at the time only on what I drawdown as income. However when the dividends are added to my drawdown (75%) portfolio will this be part of my annual tax free (currently £500) dividend allowance OR will they not count as they are in my “pension pot” (and not classed as income) as is the case currently pre-retirement?

  At the present should I actually be adding the dividends that I currently receive in my pension pot to my annual tax free allowance (£500 for me)? (I assumed dividends in a SIPP don’t need declaring/adding up towards your annual tax free dividend allowance).

  I hope that all makes sense?
  Thanks for all your work with the podcasts and Listener Questions too, you guys are awesome!

  Cheers lads,
  Jon

• Question 4
  Dear Pete and Roger,

  I've just turned off lifestyling on my pension thanks to your excellent podcast and videos. You may have saved me thousands so many thanks!

  I now have a cunning plan!
  I work for a university and have a hybrid pension with the Universities Superannuation Scheme (USS).

  Payments for my regular defined benefit (DB) pension are made via salary sacrifice. I'm also making additional voluntary contributions to the defined contribution (DC) part of USS, also by salary sacrifice. I've increased these DC payments to a level where my reduced effective pay is just above the level of the National Living Wage.

  As all my USS contributions, DB and DC, are made by salary sacrifice, they count as employer contributions. As I understand it, I am also allowed to make employee pension contributions to an entirely separate SIPP up to the full level of my Relevant Earnings, which in my case is my salary alone. Is that correct? If so, am I allowed to make employee contributions up to the level of my original salary (before salary sacrifice reductions)? Or am I only allowed to make employee contributions up to the level or my reduced salary (after salary sacrifice), just above the level of the National Living Wage?

  Is my plan a sound one or is it a cunning plan worthy of Baldrick?
  I'm 54 years old and a basic rate tax payer with a salary of about £37,000 per annum. I do not expect to be promoted.

  Simon

• Question 5
  Hi Pete and Roger,

  Long time listener and watcher on YouTube and think it is absolutely wonderful all the free good advice you put out there. I hope you give yourselves a pat on the back for helping so many people build their wealth and no doubt have a better future in their latter years than they would have had without you.

  As I reach a certain age I am pondering a strategy and was wondering if you could advise if this is a flawed approach, letting the tax tail wag the dog or perfectly valid. I've never heard anyone suggest it and can't believe that I have an idea that experts haven't thought of.

  It involves recycling tax free lump sums from an existing DC pension. My understanding is that you have to “break” ALL the conditions to breach the recycling rules and the one I am considering not breaking is “tax free lump sum is less than £7,500 in any 12 month period”.

  The idea is this:
  – Crystalise 30K. £22.5K into a drawdown pot and left untouched so as to not trigger the MPAA. £7.5K tax free cash withdrawn
  – Take the £7.5K tax free cash and recycle it into a new SIPP
  – Benefit from 40% tax relief to gain an additional £5K
  – Do the same a year later and repeat until actual retirement

  If I did this for the 10 years between first accessing my DC pension and retiring from employment at state pension age that's an extra £50K “free”. The only downside I can see is that by crystalising you remove a portion of your existing DC pot from being able to have a 25% tax free slice of a bigger pie in the future. However I would have thought by putting the tax relief and tax free cash into a new SIPP, plus 25% of that total being tax free second time around when withdrawn, it would outweigh the downside, particularly if you think you're going to be a lower rate tax payer in actual retirement. Any thoughts gratefully received.

  Keep up the great work and fantastic content.

  Kind Regards, Tom

• Question 6
  Hi Rodge & Pete
  Love the energy of the show, both educational and also very funny one of my favourite financial podcasts!

  I recently purchased my first home solo at 35 on a 39 year mortgage term which takes me above the standard retirement age and I do hope I am not working full time by the age of 74. I went with the longer mortgage term to keep monthly costs down initially with the plan to possibly review this when my fixed term comes to end in 2030.

  I contribute monthly to my S&S ISA currently £200 with the plan to double this in 2026 but should I be diverting some of these funds instead to overpay the mortgage? I’m conflicted about this as I believe I will get better returns on the S&S ISA over the 39 year period vs saving interest on the mortgage.

  I currently contribute to my employer DC pension and also have a fully funded 3 month emergency fund so any spare cash can be put to work for my future.

  Thanks, Chantelle

Send Us Your Listener Question

We’re going to spin out the listener questions into a separate Q&A show which we’ll drop into the feed every 2-3 weeks or so. These will be in addition to the main feed, most likely, but they’re easier for us to produce because they require less writing! Send your questions to hello@meaningfulmoney.tv Subject line: Podcast Question

---

The post Listener Questions – Episode 42 appeared first on Meaningful Money – Making sense of Money with Pete Matthew | Financial FAQ.

* This article was originally published here

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