Where to get advice re-funding forced early retirement?

xylophone

he could read the links as well?

In particular

[B]HMRC define relevant earnings as:[/B]

employment income such as salary, wages, bonus, overtime, commission (providing it is chargeable to tax under Section 7(2) ITEPA 2003)
income chargeable under Part 2 ITTOIA 2005, that is income derived from the carrying on or exercise of a trade, profession or vocation (whether individually or as a partner acting personally in a partnership)
income arising from patent rights and treated as earned income under section 833 (5B) ICTA 1988
general earnings from an overseas Crown employment which are subject to tax in accordance with section 28 of ITEPA 2003
rental income is generally not relevant earnings but some rental income may be included if it is in respect of UK or EEA furnished holiday lettings business
Where relevant UK earnings are not taxable in the UK due to double taxation agreements they are not relevant earnings.

atush

BoudiccaUK wrote: »

So, if I've understood correctly:
I have my rental income - let's estimate around £8,000.
I take a salary from the company - enough for me to qualify for NI contributions.
My total income will then be above the tax free allowance.
I open a personal pension and pay in the amount that takes me above the tax allowance?
I don't pay tax?

It's Sunday evening and I've had a glass of wine so forgive me if I'm getting the wrong end of the stick - I'll be able to concentrate harder on Monday!

This is more or less correct.

So instead of Dividends from t he company you could put your LEL salary into the pension.

AS a side note, the company can pay into your pension as well, and save tax for the business on its profits

BoudiccaUK

xylophone wrote: »

You make the pension contribution from your relevant earnings which will be your salary......

In certain limited cases RE can include rental income see Pru link.

And those with no relevant earnings can contribute up to £2880 net

£3600 (gross).

Your accountant should be able to make all clear - he could read the links as well?

Ok, may need to read this several times before it becomes obvious to me

- So as my rental incomes aren't furnished or holiday lets they don't count as relevant earnings.

- Even if I have no relevant earnings I could still put up to £2,880 net into a pension plan. (more if I took a small salary)

- Putting money into a pension plan would mean I could perhaps take enough salary to pay a lower rate NI (currently voluntary Class 4)

Mind you the accountant is only paid to do my husband's self assessment and business accounts. I do my own SA as it has been pretty straightforward. I don't know how much I would actually save if getting the balance was a bit complicated and I had to pay the accountant to do mine also. Do you think the potential advantages are worth spending an afternoon (or two) with pencil and paper? Getting a bit of a headache...

xylophone

- So as my rental incomes aren't furnished or holiday lets they don't count as relevant earnings.

- Even if I have no relevant earnings I could still put up to £2,880 net into a pension plan. (more if I took a small salary)

Yes.

You will receive NI credits if you go the LEL route - see link in my previous.

You are thinking of consulting an IFA - he will certainly be able to advise on personal/company pension contributions.

https://forums.moneysavingexpert.com/discussion/5524207

https://www.unbiased.co.uk/

Have you and your spouse already obtained new state pension statements?

https://www.gov.uk/check-state-pension

BoudiccaUK

Ok going through the thread from the start I’m starting to understand some things that I didn’t. But still perhaps being a bit slow so do bear with me please.

I was originally under the impression that it was more efficient to take dividends, even once I reach my tax free allowance (rental properties + dividends), and be taxed at 7.5% than to take a salary which would be taxed at 20%. This however means I don’t qualify for Class 2 NI, so pay voluntary Class 3.

If I took the equivalent of the Lower Earnings Limit (currently £112 per week) that would be an annual income of £5,824

Rental income could be anywhere between £5,000 and £8,000 (depending on deductible expenses). So let’s take £8,000 for worst case scenario for tax purposes.

So that would give me an income (without dividends – I don’t think my husband and I have to take the same??) of £13,824

If I then paid £2880 net into a personal pension I could reduce my taxable income to £10,944 which would be just below the allowance and I would qualify for NI at Class 2 rate

The rates for the 2016 to 2017 tax year are:

£2.80 a week for Class 2 = £145.60/year
£14.10 a week for Class 3 = £733.20/year

So a saving of £587.60

So as long as my accountant was charging me less than I was saving (because I’d want him to do my SA as it is getting more complicated) then I’m still better off? Would there be any advantages to me putting such a small amount of money in a pension aged 53?

What about if my income was higher than expected? If I am allowed to pay £2880 into a pension with no relative earnings how much would I be allowed to pay in with relative earnings of £5,824?

Need to find out about the dividends thing...

_______________

Also still a little confused on IFA, Financial Planners and Wealth Management companies (have started a new thread to ask the difference).
_______________

Yes, Xylophone, we both recently got new state pension statements. We both have 20 years fully paid up (we lived abroad for a number of years) and have paid any gaps we could.

dunstonh

If I then paid £2880 net into a personal pension I could reduce my taxable income to £10,944 which would be just below the allowance and I would qualify for NI at Class 2 rate

Why have you chosen (at the moment) to make a personal contribution and not a company contribution?

BoudiccaUK

dunstonh wrote: »

Why have you chosen (at the moment) to make a personal contribution and not a company contribution?

Ah, I haven't. I thought that was what was suggested further up the thread.

Still trying to work out the basic idea

jamesd

The basic idea:

1. Pay yourself enough to qualify for NI. This has to be really paid to you, it cannot go directly into a pension as a company contribution.
2. Make a net pension contribution of up to the gross amount in 1 * 0.80 to eliminate your income tax cost. Doesn't need to be all, just enough. Since it's been paid to you it's qualifying earnings and eligible for pension relief.
3. Optional, make more pension contributions as company contributions direct from the company. This is not subject to the qualifying earnings limits, it can be up to 40k for this plus 2 combined. More if you were in a pension scheme (even an old on not paying in) for the last three years and have unused annual allowance available.

BoudiccaUK

jamesd wrote: »

The basic idea:

1. Pay yourself enough to qualify for NI. This has to be really paid to you, it cannot go directly into a pension as a company contribution.
2. Make a net pension contribution of up to the gross amount in 1 * 0.80 to eliminate your income tax cost. Doesn't need to be all, just enough. Since it's been paid to you it's qualifying earnings and eligible for pension relief.
3. Optional, make more pension contributions as company contributions direct from the company. This is not subject to the qualifying earnings limits, it can be up to 40k for this plus 2 combined. More if you were in a pension scheme (even an old on not paying in) for the last three years and have unused annual allowance available.

Ok so I think I get the personal contribution bit to qualify for Class 2 NI.

Now the optional second bit - direct from the company. I'm guessing that the idea is to take money out of the company tax free (maybe even reducing company tax?) but being able to get it back with 25% of it being tax free after I turn 55?

Is there any advantage to doing this rather than making a personal payment into my husband's pension pot? We've never actually reached the limit of what he can put in as a personal payment.
___________

Talk about a mental workout for a Monday morning

I've also spoken to a "Financial Planning Company" not convinced it's the right option. I think we already have all the right financial products we just need to tweak how we use them.

What I really want to know is if retirement or semi retirement was forced on us tomorrow (ie contracts dry up) what can we do with what we already have to live as well as possible. Who can advise us on this?

So it's not really about what we have to do now to achieve what we want in the future. It is about, if necessary, what we can do now with what we already have to achieve the best we can.

Maybe Pension Wise can help?

xylophone

Maybe Pension Wise can help?

Pensionwise just set out the options for taking a pension - they don't advise.

https://www.pensionwise.gov.uk/home-alternative?utm_expid=94980013-9.hDtLFv3gQpKP4vFjkHfr6w.1&gclid=CODTmruXis8CFYaVGwodd3MD6g&utm_referrer=https%3A%2F%2Fwww.google.co.uk%2F#