Pension vs House deposit

greenglide

The OP has claimed to be self employed but has also claimed that he is winding up his business by a Members Voluntary Liquidation. Both of these cannot be true. If he is truly self employed there would be no corporate structure to wind up.

An owner, director and employee of a limited company is not self employed - he is employed by the company (assuming he receives employment income from it) and is an office holder.

This matters, as it will have done previously and a company can make pension payments with no tax liability (income tax, NI or corporation tax) so can be very tax efficient.

We need to know if the OP was employed by his own company.

jamesd

greenglide wrote: »

We need to know if the OP was employed by his own company.

We don't because the difference between the tax relief and withdrawing with entrepreneurs relief is not significant compared to the benefit of lowering the interest rate on the whole of a mortgage balance. It's a very leveraged interest rate saving when LTV is lowered.

From the corporate structure we already know that this is a self-employed person via being an employee of their own business. At some business sizes it wouldn't be appropriate to describe that as self-employed, I suppose, say when there are a few thousand other employees... Of course HMRC, say, has particular rules for what they will call a self-employed person in this situation - they won't call them self-employed in some contexts but will in others. Tthat doesn't affect normal usage of self-employed that does include this situation.

lurkerlongtime

Hi all, sorry for the confusion. Strictly speaking, I was employed by the company which I was a director of. However, in my experience, the term 'self employed' is often used to include this form of '1 man band' company.

Due to this, I (well, my company) is able to make pension investments with no tax liability, however, as I am winding up the company, and I (personally) am eligible for entrepreneurial tax relief, the only tax I will pay is 10% on profits.

The way I see it is I have two options:

1) Pay in to a pension pot. I don't have anything set up already, and I presume this would incur management fees? This would be tax free

2) Take the money out of the company, pay 10% tax (entrepreneurial tax relief) and use the money towards a deposit for a house. This would likely take me in to a 75% LTV on a mortgage, possibly unlocking more favourable interest rates.

Personally, I'm leaning towards number 2, but don't know if I should be worried about having not paid in to a pension pot for the past 2 years.

pjread

If your overall liability is 10% (including 'both sides', you and your company) I'd take it and use it to hit your LTV target. Anything left could be used more efficiently perhaps, but if you're a basic rate taxpayer I wouldn't throw it there (unless you can 'run it down' whilst contributing via salary sacrifice....)

atush

You are talking profits for winding up but have you been taking a salary? If so how much?

The salary you take from the company and the corporation tax/winding up are 2 separate things? In your case though, you have been missing a trick these last years not having a company pension. So should engage an accountant for the wind up to help you decide if starting and paying into a pension is a good thing to do or not?