Significant Increase in Salary – What to do?

Greebo said:
Low at the moment but the odds are over the 20+ years the OP has got rates will be high again, maybe back up to 8%. Then you would be thankful at paying all those overpayments in the early and only having a small mortgage or having it finish 6 years early.
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If rates increase you liquidate your other assets and remortgage with a much smaller loan and LTV.
 
The_Abyss said:
Your personal allowance (£12,500 now?) drops from £100,000 income, and your annual allowance for pension contributions drops off from £150,000 income, from £40,000 annual allowance eventually down to just £10,000 a year.
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wait what!

I thought you just had a limit of a million quid a year pension contributions.
 
The_Abyss said:
Your personal allowance (£12,500 now?) drops from £100,000 income, and your annual allowance for pension contributions drops off from £150,000 income, from £40,000 annual allowance eventually down to just £10,000 a year.
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Yep. The Marginal tax rate (so the amount of the next pound you earn you lose in tax) from £100k to £125k in this country is 60% as you lose your personal allowance.

The pension one is a bit complicated but basically if what you earn plus your current pension contributions go over £150k the allowance starts reducing down. Once you get to a combined pension plus earnings of £210k you will be paying 45% tax on any pension contributions over £10k.
 
overpay the morgage with say 60-70% of the extra money, cant remember the exact figures but every £10000 in overpayments is equivilant of £16000
 
Clear some debt.
Save some.
Enjoy some.

You should be overpaying your mortgage as soon as you are in a position to do so - (presuming you have no other debt at a higher rate of interest).

https://www.moneysavingexpert.com/mortgages/mortgage-overpayment-calculator

@Steedie heeded my advice once I spelt it out for him with the above.

Typical Example said:
150k mortgage.
25 year term.
2%

£636pm
£190,700 total cost.

£150pm overpayment saves you £10,000 in interest and almost 6 years off your mortgage.
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Worth checking your lending product for any restrictions on annual overpayments. (10% of remaining balance PA for example).
 
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D.P. said:
If rates increase you liquidate your other assets and remortgage with a much smaller loan and LTV.
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Indeed, well assuming you’re on a fixed rate deal with penalties for over repayment. Though you pretty much have to remortgage with them anyway at the end of the fix period to avoid the SVR.

With a tracker you can often overpay regardless.

Either way overpaying when rates are low or rather where you’re getting a better return elsewhere provides no benefit(other than a psychological one)/is rather pointless.
 
You never know what it is around the corner, illness, fired, redundancy etc, therefore my priorities are:

  • Clear any debt - overdrafts, credit cards etc
  • Overpay mortgage - our 25 year mortgage will be paid off in 13 years saving thousands in interest (4 years left to go).
  • Build up emergency fund

I'd also take the family on holiday with some of the cash.
 
The_Abyss said:
Your personal allowance (£12,500 now?) drops from £100,000 income, and your annual allowance for pension contributions drops off from £150,000 income, from £40,000 annual allowance eventually down to just £10,000 a year.
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Not sure I follow. The salary sacrifice is paid by the company into your pension not s a contribution. It doesn't even show on my gross salary.. I'm giving up part of my salary.. hence the term Salary Sacrifice.. If I earn £80,000 and salary sacrifice £10,000 ,then my Gross income becomes £70,000... both the employee and employer benefit.
 
Admiral Huddy said:
Not sure I follow. The salary sacrifice is paid by the company into your pension not s a contribution. It doesn't even show on my gross salary.. I'm giving up part of my salary.. hence the term Salary Sacrifice.. If I earn £80,000 and salary sacrifice £10,000 ,then my Gross income becomes £70,000... both the employee and employer benefit.
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Aside from semantics you’re basically talking about a pension contribution no?
 
Admiral Huddy said:
Not sure I follow. The salary sacrifice is paid by the company into your pension not s a contribution. It doesn't even show on my gross salary.. I'm giving up part of my salary.. hence the term Salary Sacrifice.. If I earn £80,000 and salary sacrifice £10,000 ,then my Gross income becomes £70,000... both the employee and employer benefit.
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https://www.gov.uk/government/publi...l-allowance/pensions-tapered-annual-allowance

If you earn above 150k the amount you personally can contribute to a pension tax free reduces, much like the unwind of personal allowance for higher earners.
 
Admiral Huddy said:
Not sure I follow. The salary sacrifice is paid by the company into your pension not s a contribution. It doesn't even show on my gross salary.. I'm giving up part of my salary.. hence the term Salary Sacrifice.. If I earn £80,000 and salary sacrifice £10,000 ,then my Gross income becomes £70,000... both the employee and employer benefit.
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It is still a contribution into a registered pension scheme, just that the funding of it is different.
 
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