How to get the taxman to pay off your mortgage

Yes, it's possible and relatively simple, but you do need a bit of time.

First of all you need an interest only mortgage. Secondly you need a pension plan that allows you access to a cash lump sum at retirement. A standard personal pension or SIPP will do.

You will need to maintain interest payments on your mortgage and simultaneously make contributions to your pension plan. For added oomph (that's a technical term) you might be able to get your employer to contribute as well. Anyway, contributions to your pension (within your annual limit) attract tax relief at your highest rate of tax but even for lower rate tax payers you get a minimum 20% tax relief. This is based on the gross amount you pay in. So for example if you pay in £100 per month then £20 of that comes from HMRC and only £80 comes from you. Or put another way, if you pay in £80 yourself, it turns into £100 instantly. That's a 25% return which is guaranteed, now where else can you get 25% return just like that?

If we look at a £100,000 mortgage example somebody needs to build up a fund of £400,000 in their pension. This is because under current rules you can take 25% of the fund anytime from age 55 (whether you retire then or not) tax free! This 25% is enough to pay the mortgage off. Now bear in mind that for every 80p you put in HMRC currently gives you 20p (25% extra) this means that HMRC has effectively paid your mortgage off for you, which is quite neat!

If you've already got some pension funds built up you could use these as a head start!

Clearly, you will need some proper advice from a qualified financial adviser before starting something like this, but having paid the mortgage off, you still have 75% of the fund left over to help with your retirement plans!