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  • FIRST POST
    • mageliken
    • By mageliken 19th Jun 17, 10:17 PM
    • 37Posts
    • 5Thanks
    mageliken
    Lifetime ISA vs. Pension for Director
    • #1
    • 19th Jun 17, 10:17 PM
    Lifetime ISA vs. Pension for Director 19th Jun 17 at 10:17 PM
    Hi

    I'm a director of a small company. I pay myself a salary up to the Personal Allowance and use my dividend allowance. The company operates a defined contribution scheme for directors, which reduces its corporation tax liability and from my personal perspective is "gross" as I've paid no personal tax prior to contribution.

    I am not a homeowner, but expect to be within the next few years, and I have a fully contributed Help to buy ISA.

    I am wondering how a Lifetime ISA (LISA) can play a part in my financial planning for retirement, and how this weighs up against my company pension and which is most tax efficient.

    I would expect to open a S&S LISA, and possibly use the full £4k/yr allowance and adjust my company pension contributions accordingly. Although it is not technically correct to say, the 25% bonus effectively means that my personal LISA contributions are tax free and there is also no tax to pay when I withdraw at age 60?

    My main concerns are the extra five year wait to withdraw, but I feel this is mitigated due to my pension. I am also concerned about how 'at risk' the LISA is in terms of bankruptcy, however I feel this is mitigated due to the cap on annual contributions.

    Is it a no-brainer in my situation?
Page 1
    • kidmugsy
    • By kidmugsy 19th Jun 17, 11:45 PM
    • 9,670 Posts
    • 6,427 Thanks
    kidmugsy
    • #2
    • 19th Jun 17, 11:45 PM
    • #2
    • 19th Jun 17, 11:45 PM
    You could start a LISA to help with house purchase and thereafter continue it for retirement.
    • dunstonh
    • By dunstonh 20th Jun 17, 12:11 AM
    • 89,852 Posts
    • 55,457 Thanks
    dunstonh
    • #3
    • 20th Jun 17, 12:11 AM
    • #3
    • 20th Jun 17, 12:11 AM
    In pure tax efficiency terms, the pension usually trumps the lifetime ISA with a few exceptions.

    I would expect to open a S&S LISA, and possibly use the full £4k/yr allowance and adjust my company pension contributions accordingly.
    That outcome results in more tax at the front end and therefore less in your pocket/tax wrapper. How much will depend on how much salary/dividend take you get. That figure is a key one but is missing from your post.

    Although it is not technically correct to say, the 25% bonus effectively means that my personal LISA contributions are tax free and there is also no tax to pay when I withdraw at age 60?
    Although you would have paid extra NI or dividend tax at the front end and you still get a personal allowance to use up at the backend.
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