Secrets of UK Pension Millionaires #1 | The Fundamentals
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- Опубліковано 5 жов 2024
- See links in the description #SHORTS
Pension Tax Relief Calculator
www.hl.co.uk/p...
Earn over between £100k & £123k? Use pension contributions to get 60% tax relief and remain eligible for Tax-Free Child Care & 30 Hours of free childcare per week.
bhp.co.uk/news...
adviser.royall....
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But the government will tax you back on your end pension amount when you come to draw it. That tax on drawing your pensions starts at 20% because your state pension uses your personal allowance. Who's the biggest winner in the end. The government of course. He he
No.
You can withdraw 25% tax free. Then, after that, you pay income tax. So you are ALWAYS better off with a pension.
Additionally, you may, depending on circumstances, withdraw money at a lower rate then you paid when you invested. That could be someone paying in at 40% but taking out at 20%. Or it might even be 0% tax. If you have no other earnings, you can take over £16,000 out in one year, with no tax at all.
BUT the government controls when you can take that money
Everyone but everyone who comments on pensions focusses on the tax reliefs on the contributions and on the capital gains. But that’s only part of the story. When you take income out it’s taxed at your income tax rate at the time once you used up the 25% tax free cash allowance. In that circumstance a capital gain in the fund is effectively taxed at your income tax rate when taken as income. Currently that’s a higher tax rate than on a taxable capital gain outside the pension fund.
I’m not saying pensions don’t have tax advantages but they aren’t as simple as you get all these huge tax savings on money paid in and accumulated. You must think about what happens at the other end when you access the funds.
Yes, you're right that definately needs to be considered too. But i would phrase that slightly different, rather than a higher tax on the gain it's just delaying the income tax.
So if you were to compare £100 of income going into a pension vs being invested in a GIA, for a HR tax payer. Both invested in the same thing with a 100% gain:
GIA: £100 less 40% income tax = £60 X 2 = £120
Pension: £100 X 2 = £200 less 40% tax = £120
Whilst in reality the pension contribution may also save you NI, the GIA may have a tax on the gain, you get the pension 25% tax free and then you may be a lower rate taxpayer in retirement.
@@JamesShack nicely explained. I would just add that you might not be a taxpayer at all during retirement period by withdrawing only tax free amount every year (that is over £16k a year of tax free income - assuming one does not take 25% tax free lump sum at once from the pot and does not have any other sources of income).
But who would enjoy to live on £16k a year? I would say many frugal people, like myself for example. If one want’s more income then ISA comes to the rescue to top up the difference. That way you will pay no tax on your income during retirement. I say during retirement because in reality ISA money were taxed on a way in.
Can someone explain the 66% tax added for higher rate tax payers?
I thought it was only 40%
40% reduction needs a 66% uplift to get to where you started. It's like losing half of your money, you need it to double to get back to where you were.
hi James
is it better, just to put it into a isa, as you have more control of it,
as you get older they move your money into bonds which do not perform very well over time?
and when you get to retirement age, do they forced you to put it into an Annuity at a crap percentage of interest.
Can you put me right on this?
ISAs have less tax benefits than pensions, but they are more flexible. That's not the only option in retirement, most of our clients will have a portfolio of stocks & shares, with some bonds, which is held across ISAs & Pensions and we create an income for them by selling down assets in the most tax efficient way. I will do a video on this in a few weeks time.
I have SIPP with Vanguard invested in Index funds, is that eligible for 25% top up? Not sure I understand how that works?
20%, and Vanguard will claim it back for you from HMRC ready for you to invest. Takes about six weeks. If you're a 40% tax payer, you can claim the other 20% back in your self assessment at the end of the year.
Great stuff! New subscriber here, can you swap your work pension to a sipp pension and keep the employee contribution
Sometimes they allow a partial transfer, which allows you to leave the account open but transfer the rest out.
Do you have a video on loan backs from your sipp
I’m on £125k + equity per year. I wasn’t aware that I’m able to salary sacrifice and get child care schemes - nice. However, when you say
Well, isn't that great.
Rich people think of ways to get shit for free. And we wonder why the world is fucked..
@@SubjectiveFunnyvictim mentality is exactly why you’re poor. Either stay that way and stay poor, or grow a pair.
@@SubjectiveFunny Not for free is it, when they are paying more tax than those under 100k. They are just getting access to a benefit that others who contribute less in tax are rewarded with.
@@DrEarim It should be for those than NEED it, not those who WANT it.
This is exactly why the west is doomed, greedy people everywhere.
Disgraceful.
Can you add in some links to find out more?
Hi! I've added links into the description so you can read up on all the tips in the video. Thanks for pointing this out, I should have added them from the beginning!
All great points. Pensions are indeed great vehicle to build wealth no doubt about it.
I am scratching my head about something related: If I am higher rate tax payer, say I earn £51k a year but also contribute to my SIPP £5k a year. Then what would be my tax free allowance on interest earned from savings accounts? Would it still remain at £500, or the fact that I contribute to my pension would increase this tax free allowance to £1000? Thanks.
It works in the same way as your personal income tax allowance when you earn over £100k. By using pension contributions you are reducing your income so you can reclaim these tax allowances.
@@JamesShack many thanks for replying.
Hi, thanks for this. Where is the template for HR?
Thanks James, thought you had some crazy earrings in for a minute!
Haha yes it looks a bit weird, got some swish new bose headphones. Have you tried doing any shorts yet?
@@JamesShack no I haven’t, have you found them to be worthwhile?
Recently started paying in a £367.65 AVC as a salary sacrifice which translates into only £250 less in my bank account. Deffo something more should consider!
Hey Rob, for sure. One other thing (which i'll be covering in tomorrows video) when you make that AVC to a salary sacrifice scheme you are actually saving your company National Insurance Tas of 13.8%. You should ask them if they will pay that tax saving into your pension, because it's you volunteering to make that contribution that is saving them tax. It doesn't cost them anything. They may accept that straight up or go 50/50 with you. Definitely try this out, the video will include an email template for you to send to HR
@@JamesShack yes absolutely. I’ve emailed them already to find this out, haven’t heard back just yet.
I’ve started a UA-cam channel myself and have just done a short video on just this (if you’ve 6 mins spare this bank holiday Monday 😅)
Really enjoy your content and delivery
How can you get 66% ? I am on £75k
Can you help me understand pension contributions from a relief at source scheme instead of net? Which is better plus does it make a difference if you increase your contributions?
James continues to be a legend. Thank you so much.
And they will still raise the pension retirement age till you'll never get it :))
If you sacrifice part of salary to put into pension you get child benefit? So your salary before pension contributions don't count? Really???
we knew this over 20 years ago when being self employed I offset my pension contributions against a low income and got a similar amount back in WFTC , HMRC always kept the formula for this a secret and had to be reminded every year but it was well worthwhile
Hmm what you mean? You meant in 20% tax bracket
@@knowledgeseeker5499 back in those days if your income on paper was less than the lowest tax threshold and being self employed you could still contribute £3800 per year to your personal pension, that amount would at the time be deducted from your income when they calculated your working family tax credits , example a £10000 income with £3800 payed into a pension would become £6200 , if say then your wife was working part time and you had 2 children they would add both your incomes together and make up the shortfall to the minimum promised to a family with 2 working parents and 2 children which I seem to remember was around £18000 , in that situation it worked out that the government was effectively paying your pension contributions and adding 25% to the pot for good measure , Gordon Brown was a genius
Hi James! I was looking into financial advice services earlier and tried looking you up as I love your videos but couldn't find anything. Do you offer independent financial advice?
Hi Chris, my full name is actually James Shackell, but everyone always gets the pronunciation wrong! And James Shack is more catchy. Here’s my company: octopuswealth.com . Feel free to message me on Instagram or LinkedIn if you’ve got any questions. I will be setting up a more direct route for people to enquire about advice in the future.
I thought you could earn upto 60K now without losing child benefit?
But you can only take pension until you hit pension age, and that gets taxed as well...and on top of being old, you'll be lucky to live a few more years...and then your kids will just take your money
Hmm...🤔
Hi James love your videos. what do you recommend for a company owner who needs £50k gross income (from salary or dividend) and wants to keep child benefit, pay tax at 20% max, but also wants to get higher rate tax relief on their pension contributions (est £10k per annum) Thanks.
Sorry, even company owners can't just make up how much tax they want to pay. If you need to pay yourself over 50k then pay the tax and get over it
I'm not a fan of this Tiktok-style fast-talking video. Your other content is MUCH MUCH better (slower, more thought-provoking, well-explained).
good video , cheers
Thanks 👍
Can only rich people retire
Looks like it to me
Yes
Can't wait to retire at 75 years old and live my last year rich as fk....
Confused and too fast sorry
These are all lies