Lisa or pension

bigadaj

lisyloo wrote: »

OT - but it's really weird having a tax wrapper called the same as you.

Not uncommon though.

Ms. Jowell might have thought the same thing in the nineties, and the current man city manager would have been similar.

kidmugsy

bigadaj wrote: »

the current man city manager would have been similar.

Was there really a savings scheme called "Buy a new centre-back for heaven's sake?"

cloud_dog

I thought he was called.... "Really, what value does Sterling bring to the team?"

bigadaj

I can't believe that people can't remember the guardiola, tax advantaged share scheme, it's like it was yesterday.

zagfles

The answer isn't as straightforwards as others are implying. It will depend on a lot of factors.

For instance, if he's a basic rate taxpayer, he takes most of the profits as dividends, and he's likely to have enough other income in retirement to use up his personal allowance, then a LISA could be better.

Example:

Every £100 into pension from ltd company - pension has £100, when he withdraws 25% tax free and 75% taxable if no PA spare, £85 out.

LISA: £100 extra profit for company £81 after corp tax, £74.92 after dividend tax. £74.92 into LISA, add 25% bonus becomes £93.66. No tax on the way out, so £93.66 out. More than the pension.

Obviously there'll be growth but both will be multiplied by the same growth factor assuming same investments, so irrelvant for comparisons.

Change the assumptions and the calc changes. Other issues to consider are access and means tested benefit eligibility.

louloubelle79

Hi sorry to bring my Q up again. Husbands FA advised him to ask accountant about his pension. Accountant finally got back to us and told him to wait until December as money prob better in savings other than pension...? Really confused. Should we just go with FA advice?

louloubelle79

zagfles wrote: »

The answer isn't as straightforwards as others are implying. It will depend on a lot of factors.

For instance, if he's a basic rate taxpayer, he takes most of the profits as dividends, and he's likely to have enough other income in retirement to use up his personal allowance, then a LISA could be better.

Example:

Every £100 into pension from ltd company - pension has £100, when he withdraws 25% tax free and 75% taxable if no PA spare, £85 out.

LISA: £100 extra profit for company £81 after corp tax, £74.92 after dividend tax. £74.92 into LISA, add 25% bonus becomes £93.66. No tax on the way out, so £93.66 out. More than the pension.

Obviously there'll be growth but both will be multiplied by the same growth factor assuming same investments, so irrelvant for comparisons.

Change the assumptions and the calc changes. Other issues to consider are access and means tested benefit eligibility.

Thank you, maybe LISA then way forward as he basic tax payer.

dunstonh

Husbands FA advised him to ask accountant about his pension. Accountant finally got back to us and told him to wait until December as money prob better in savings other than pension...? Really confused. Should we just go with FA advice?

I sometimes ask the accountant about pension contributions. However, that is only where the company may not have as profitable a year and you want to make sure that the contribution will get the Corporation tax benefit. If the company is profitable by more than the contribution, you dont need the accountant involved.

If the account is anti pension then it suggests poor knowledge. Unfortunately, you do still come across accountants applying 1990s knowledge to current products.

If your husband's adviser is an FA and not an IFA, then their compliance may insist they speak to an accountant. FAs have restrictions that sometimes require things that are not for your benefit but to protect the FA's employer or network. They have to cater for the lowest common denominator. Its one of the reasons why its best to avoid FAs.

maybe LISA then way forward as he basic tax payer.

LISA will almost certainly be worse than the pension. Company pays 20% Corp Tax and your husband is paying 7.5% tax on dividends LISA only counters the 20% Corp tax. It still leaves him paying 7.5% dividend tax. Whereas pension via the company avoids both 20% CT and 7.5% dividend tax.

If he employs an adviser then the adviser should be doing the decision-making here. Not you. If you are having to do the work, then the adviser is not up to the job and he should consider replacing him. As it stands, based solely on what you have written,I am not impressed with the FA or the accountant.

zagfles

dunstonh wrote: »

LISA will almost certainly be worse than the pension. Company pays 20% Corp Tax and your husband is paying 7.5% tax on dividends LISA only counters the 20% Corp tax. It still leaves him paying 7.5% dividend tax. Whereas pension via the company avoids both 20% CT and 7.5% dividend tax.

Err, yes, but the LISA is always tax free on the way out. The pension possibly isn't. See my post above for an example.

If he employs an adviser then the adviser should be doing the decision-making here. Not you. If you are having to do the work, then the adviser is not up to the job and he should consider replacing him. As it stands, based solely on what you have written,I am not impressed with the FA or the accountant.

Nor would I be impressed with an adviser who didn't account for pensions being potentially taxable on the way out

dunstonh

Err, yes, but the LISA is always tax free on the way out. The pension possibly isn't. See my post above for an example.

Pension still beats LISA in most scenarios.

Pension has saving on 20% CT and 7.5% Div tax saving on the way in but only 75% of income above future personal allowance taxed on way out. Personal allowance unused by state pension is around £3500 for most people. Thats around £100k of pension fund in todays terms.

LISA gives back the equivalent of 20% but you would have paid 20% CT and 7.5% div tax. So, it is immediately worse. It is tax free on exit but that wastes the unused personal allowance.

There may be a case for having both if the contribution level and future fund value hits certain bands