Sole Company Director - Pay Into Pension or LISA?

drunknmunky

Hi all,

I'm the sole director of my own Ltd company. I don't have any staff & therefore don't apply for AE.

I see my business as my own small company that pays my wage, so I view (perhaps incorrectly) matched employer pension contributions as money out of my own pocket.

The LISA appeals as it very straight forward & 100% tax free on withdrawal. I'm 37 so I can invest 13 years worth of contributions (up till the age of 50) at the maximum £4000 allowance.

I'm happy not to touch the money until retirement age & I'm just wondering what the general consensus is on saving money into a pension versus saving into a LISA?

Thanks

Terron

Do you own your own home?

Do you have any saving? You should have a fairly easily accessible fund in case of emergencies.

Are you a higher rate taxpayer?

xylophone

https://www.taxcafe.co.uk/pensionmagic.html

https://www.pensionbee.com/pensions-explained/pension-contributions/contributing-to-your-pension-from-your-limited-company?ast=KSRSld

drunknmunky

Terron wrote: »

Do you own your own home?

Do you have any saving? You should have a fairly easily accessible fund in case of emergencies.

Are you a higher rate taxpayer?

Hi,

Apologies, I should have given more information.

I have savings, nearly six figures spread over cash & S&S ISA's so covered in the event of emergencies.

I'll be purchasing a house soon so will have a mortgage which will cost approx £1000 p/m (my wife & I will pay £500 each).

I'm a basic rate taxpayer & pay myself £975 p/m (£11700 p/a) to take myself just over the income tax threshold & I pay myself dividends from the company.

Reading Xylophone's first link makes Pensions look very attractive due to the fact employer contributions counts as an allowable business expense, thus receiving tax relief against Corporation tax.

Am I missing anything or do LISA's have any benefit at all in my circumstance?

Prism

I am in the same situation. I pay myself a pension directly from the company. This reduces company profits and therefore corporation tax. By far the best option from a tax perspective. You don't need to worry about matching contributions.

dunstonh

I see my business as my own small company that pays my wage, so I view (perhaps incorrectly) matched employer pension contributions as money out of my own pocket.

Your salary is also likely to be £680 pm for tax and NI reasons.

The LISA appeals as it very straight forward & 100% tax free on withdrawal.

Not quite. You pay into the LISA with money that has been subject to corporation tax and dividend tax. Whereas pension is paid from the company and reduces your CT bill and there is no dividend tax.

You also have the full £40,000 annual allowance as long as you are not subject to tapering.

So, pension should be more favourable than LISA in this scenario.

atush

if you are a company director i'd go pension.

drunknmunky

Great, that clears it up then. Pension it is!

Many thanks for all the advice, it's much appreciated!

dunstonh

Just remember you are not making personal contributions to the pension. They must be employer contriubtions.

Prism

While you are at it I would suggest you reduce your salary to £702 per month from April onwards, assuming you would prefer to pay less tax

dunstonh

I'm a basic rate taxpayer & pay myself £975 p/m (£11700 p/a) to take myself just over the income tax threshold & I pay myself dividends from the company.

You should be paying yourself to the level of the primary threshold. This is £680 currently and £702 from next tax year as you avoid NI that way yet still qualify as if you have paid it. Dividends would be taken on any amount above that. As it stands, you are paying unnecessary NI.

This is accountancy 101. Did your accountant recommend you pay that much or did you decide it?