Household income doubling, how to make it count

[Northcoastmama]

So our household income is doubling from £80,000 to £160,000 and looking for ideas to maximise the additional income. There are going to be some additional costs coming out but will still be significantly better off.

current household is my husbands salary of £62,000 plus bonus of £8,000 plus rental income of £10,000

new household will be husbands salary of £90,000 plus bonus of £15,000. Rental income of £14,000 (mortgage ending) my salary of £40,000 (going back to work)

new costs will be three days at nursery for youngest at £800 pm and pre prep fees for eldest at £600 pm (grandparents paying half the fees)

what should we do with the extra money? How can we make it work for us? Many thanks

Congratulations.

you need to work out what you are aiming for - early retirement, kids uni funds, or house deposits, exotic holidays, new cars, a cleaner to help out.

the financial flow chart can help to set up things like emergency fund and first line saving. I am rubbish at links, but the financial flow chart is easily found on a search.

don’t let lifestyle creep take your future from you, but do consider what would make life easier when you both work. Cleaner, gardener, robot hoover, gusto boxes

Do you need to keep your husbands income under 100k to get 30 funded hours childcare and tax free childcare? If so I would be putting in a large % on his salary into his pension via salary sacrifice - presuming the rental income is 50/50 for you both tax-wise, if his yearly income is 112 (90+15+7) I would try to get it down to 95 ish - 20% income into his pension (72k) plus 15+7
you also really want to avoid the 100-125k bracket due to the 60% equiv tax rate (you lose personal allowance gradually over 100k) and you will have to do a tax return too.
To be as tax efficient as possible I would probably increase his pension % further but of course that is in his name so you also want to safeguard your own pension in your name by contributing to that too although the tax saving will be less at 20%. (If the 15k bonus completely falls in the 100-125k tax bracket you will only keep about 6k of it. Keep an eye on how much tax you are paying throughout the tax year as PAYE will probably just take the standard 40% off then you’ll have to pay the extra 20% via your tax return, so keep this money saved/ put aside). We do tax returns in June / July for the previous tax year when you have P60/ P11D so we know exactly that’s due (to the paid end of the following Jan)

Try to avoid lifestyle inflation as you are already comfortable.

Also, keep in mind that you can withdraw 25% of your pension pot tax free (up to a limit) at 57 (although of course that might change).

Do plenty of income calculators, work out exactly how much you’ll have coming in every month with tax deductions and do a thorough budget spreadsheet like the one on money saving expert. I wouldn’t rely on the bonus for income for usual outgoings as this could change at any time and will also be taxed minimum 40%

You could probably start shopping in Tesco instead of Lidl now

Will the grandparents fund half the fees indefinitely?

First of all you need to make sure your husband pays more than £5k into pension to keep his taxable pay below £100k and keep entitlement to subsidied childcare. Make sure the rental income comes to you for the same reason, not via his self assessment.

Is the tax liability on the rental income dictated by who is on the deeds of this house? Can they change this or I’m assuming legally it has to be 50/50 if jointly owned?

Maximise pension contributions
S&S ISA
Whose name is the rental income in? Make sure it's set up in the most tax efficient way
A bit of fun stuff - better holidays & a cleaner!

Is there any scope to retain your current lifestyle and save/invest the additional? Or use it to overpay the mortgage (if higher interest rates then savings).

What is your lifestyle like now? If you are living well I wouldn't seek to increase quality if lifestyle for a good while.

Yes, look at the most efficient way for tax to be processed.

Then work out what your actual take home monthly is now and what it will be, if the tax isn’t streamlined it will be considerably less than doubling your monthly income.

This is definitely a good idea.
If you don’t “need” all of it, you could put as much as possible into junior ISAs as well as a kind of easy to reach emergency fund. Pension contributions (boring but necessary) to keep under £100k so as to not lose the funded childcare.

Do The Rebel Finance School course…free in FB and YT.

Depends what you mean by maximise. In theory if you don't need more spending money, you can save everything above your current day to day into a mix of pensions, ISAs and savings (both cash and shares). As others have said your husband in particular needs to make pension contributions to take him below 100k earnings. Can you overpay your main home mortgage? Build your children's savings accounts?
I'd recommend a session with an IFA as they will give you ideas and advise on minimising impacts of tax and how to manage the rental income too.

Go travelling, see the world as much as you can!

Lots of great suggestions thanks so much. Rental properties are in my name already so we save there. We don’t need to move house and new position comes with a company car so won’t be upgrading there’s but are commiting to schools fees for the next 15 years which is a lot. Will definitely look at putting more into pensions to access the free childcare. Don’t know whether to try and save up fees from the extra or invest or both

Correct but you can vary the ownership or use a Trust Deed for the income allocation.

Unless you HAVE to pay school fees, you'd be far better off investing the money and gifting your kids a huge deposit. Pay for tutors and use good state schools. School fees are often misplaced and you won't be putting it in your pension,

... I just don't see the benefit when I look at the kids I know in Private school.

Another vote for looking at Rebel Finance School and educate yourself.

Child benefit also hasn’t been mentioned here but you might want to review those thresholds too

@Aintnosunshinenowitsgone unfortunately the private school does feel non negotiable to us. Our eldest is a very quiet and extremely emphatic little boy and as an ex teacher I really don’t feel like he would cope in state. He has no diagnosis and none has ever been suggested to us but the larger class sizes and the generally more chaotic classrooms in most state schools would just be too much for him. Of course we then have to send our youngest too to make it fair. I do still think they should get a good amount from us for deposits as they have savings accounts and we will probably sell a rental property and halve the money between them when they are older. I do generally agree though, if my youngest had been my eldest we wouldn’t be looking at private

Pension!