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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
    • 9,629 Posts
    • 6,378 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
    • 89,518 Posts
    • 54,967 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.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
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