Can I SIPP my way to less taxation?

LiveOnLess

Apologies for this post also appearing in the Pensions section - but it has relevance to both tax and pensions

Can any of the “Gurus” on here please help me? I’m currently setting up a new business venture with a small established Ltd company. The new venture will take the form of an associated Ltd company (I’ll own 49%) of which, initially, I’ll be the only (part time) employee and a director. I am 51 and have virtually no pension provision – just a few old personal pensions collected over the years (<£20k total current value). I am wondering if a very tax efficient way to both build up a pension fund rapidly, and pay less tax and NI on my income would be as follows:

Pay myself the minimum wage, thus little tax and NI.

Q1: As a director do I even need to be paid the minimum wage? I guess though it’s best to pay some NI to maintain my entitlement to a full state pension?

Top this up with enough money to live on by taking dividends – company profit is taxed at 20%, but no further tax for me to pay personally unless I’m in the higher rate tax band. Also more importantly; no employers or employees NI to pay except on the “minimum” wages. Then have the company pay the rest of my share of the profits into my SIPP.

Q2: I believe payments into employees and directors pensions come out of the company before tax, so is this money then effectively tax free?

Q3: If the company makes the payments, and these come out before tax, then presumably there is no further personal tax relief available to me on this as it’s already come out of the Ltd co before tax?

Q4: As I’m over 50 can I start a new SIPP every year, or even every 6 months, “retiring” the last one and taking the 25% tax free cash lump sum, but deferring the pension? I would not be re-cycling the lump sum into another SIPP as I’d need it to live on i.e. as income. I think re-cycling is frowned upon anyway, but don’t know how it’s prevented in practice.

In this way – if all my assumptions are correct - I will be able to get my 49% of the business profits out as follows; 25% of what’s paid into my SIPP back as tax free lump sums, the rest - at less 20% “corp tax” - as dividends, and just pay tax and NI on the min wage. The balance funding my pension.

One final thought. Gordon - incomp-prudence - Brown has made the tax and pensions system in this country so complex that very few fully understand it - not many of those working for HMRC for sure!! Good advice is hard (and expensive) to come by, and whatever may be good advice today may be negated by government meddling in the future. So it really is very difficult to know what to do for the best. This country is really heading for a major crisis of poverty in old age that will affect very many of those of my age and younger. And don’t think your house will become your pension, because a property crash is almost a certainty at some stage soon.

I all sounds too good to be true, and so probably is. Are there any other angles I've overlooked?