Earn c130k, max pens cont - what else?

csgohan4

1980ds said:

Thanks that’s very interesting. Cutting down hours will probably be more in the years to come than now I feel. And I didn’t know the £40k included growth! Has anyone a link to this to explain in layman terms? 

Thanks again

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/the-annual-allowance

is a useful resource, but my info comes from my IFA and I asked the same question, so I cut down my hours to stay below 100k, otherwise I would be basically working for free with highly taxed for little benefit and more stress

As above you could set up your own limited company do work on the side and employ your relative if they do work and give them dividends.

However it would need to be justified or you will come under the settlements legislation for tax avoidance which is also confusing when you take the Artic ruling into account but that's another story.  Suffice to stay, best to stay under the radar of the HMRC and split everything 50/50 if doing it with your partner. 

Jeremy535897

As above you could set up your own limited company do work on the side and employ your relative if they do work and give them dividends.
However it would need to be justified or you will come under the settlements legislation for tax avoidance which is also confusing when you take the Artic ruling into account but that's another story.  Suffice to stay, best to stay under the radar of the HMRC and split everything 50/50 if doing it with your partner. 

My suggestion was a partnership. A limited company solves nothing, because it won't generate a personal tax loss that could be set against salary. The Arctic Systems case involved a company and the taxpayer won anyway.

EdSwippet

csgohan4 said:

Annual Lifetime allowance for pensions is not solely based  on contributions, but also the growth. With that level of salary and contributions, you will reach this very quickly. As you know you can only use up your last 3 years of AA [annual allowance] if not maxed them. 

Fixed above (typo?). The lifetime allowance is the total pension pot, so both contributions and growth. The annual allowance is contributions only.

csgohan4

Jeremy535897 said:

As above you could set up your own limited company do work on the side and employ your relative if they do work and give them dividends.
However it would need to be justified or you will come under the settlements legislation for tax avoidance which is also confusing when you take the Artic ruling into account but that's another story.  Suffice to stay, best to stay under the radar of the HMRC and split everything 50/50 if doing it with your partner. 

My suggestion was a partnership. A limited company solves nothing, because it won't generate a personal tax loss that could be set against salary. The Arctic Systems case involved a company and the taxpayer won anyway.

Apologies as I misread your post.

Partnerships certainly have their place and will depend on their situation. You get taxed on your share of the profits and generally no NIC to pay. Also no Corp tax. 

My understanding that with the Artic case, HMRC can still come after you as there are only certain cases it applies under.

However if your the main person doing the job and you give your husband/wife all the income and dividends, you only get 2k dividends for example and draw no income, it may fall foul of the settlement legislation for shifting of income and tax avoidance

Jeremy535897

The point with a husband and wife partnership is that they are free to share profits as they wish from year to year. As long as the partnership carries on a trade or profession with a view to profit, any losses (including those created by capital allowance claims) can be set against other income. So in a good year you might share profits 10% higher rate taxpayer 90% basic rate or non taxpayer, and in a loss year you reverse the allocations. I have never heard of HMRC trying to apply settlement legislation to this sort of situation.

csgohan4

Jeremy535897 said:

The point with a husband and wife partnership is that they are free to share profits as they wish from year to year. As long as the partnership carries on a trade or profession with a view to profit, any losses (including those created by capital allowance claims) can be set against other income. So in a good year you might share profits 10% higher rate taxpayer 90% basic rate or non taxpayer, and in a loss year you reverse the allocations. I have never heard of HMRC trying to apply settlement legislation to this sort of situation.

I've only seen settlement apply for Limited companies.  But i can see some benefit, as your going to set 50/50 share anyways between husband/wife, partnership or Limited company, might as well remove the 20% corp tax and dividend calculations. 

But assuming you can get around the settlement legislation and only your wife draws income and max dividend up to the higher rate tax threshold, this may be more tax efficient?

Jeremy535897

csgohan4 said:

Jeremy535897 said:

The point with a husband and wife partnership is that they are free to share profits as they wish from year to year. As long as the partnership carries on a trade or profession with a view to profit, any losses (including those created by capital allowance claims) can be set against other income. So in a good year you might share profits 10% higher rate taxpayer 90% basic rate or non taxpayer, and in a loss year you reverse the allocations. I have never heard of HMRC trying to apply settlement legislation to this sort of situation.

I've only seen settlement apply for Limited companies.  But i can see some benefit, as your going to set 50/50 share anyways between husband/wife, partnership or Limited company, might as well remove the 20% corp tax and dividend calculations. 

But assuming you can get around the settlement legislation and only your wife draws income and max dividend up to the higher rate tax threshold, this may be more tax efficient?

No, you alter the partnership shares between husband and wife. If husband is in the unpleasant 60% band due to withdrawal of allowances, and they have a small business in partnership, you could see this:
Year 1 modest profit £2,000 90% wife 10% husband husband pays tax of £200 at 60% = £120
Year 2 loss due to capital acquisition £20,000 10% wife 90% husband: husband sets loss of £18,000 against other income thus saving £18,000 at 60% = £10,800.

1980ds

Thanks this is all very useful

csgohan4

Apologies OP for derailing your thread. 
In summary, very limited what you can do for high earners trying to reduce their tax/pension bill, reducing hours is an option, gifting to charity is another, but partnerships are also an option of off loading losses such as a van e.t.c

I had a look at Venture capital schemes but they are not without risk however and needs research. 

As a high earner, might be prudent to consider savings in a ISA as interest gained is very limited before being taxed too. Or if your feeling lucky, premium bonds. 

IFA would be useful to go through the specifics and ins and outs. I certainly understood more from my first meeting with them than random googling. But this website is quite useful too.

csgohan4

EdSwippet said:

csgohan4 said:

Annual Lifetime allowance for pensions is not solely based  on contributions, but also the growth. With that level of salary and contributions, you will reach this very quickly. As you know you can only use up your last 3 years of AA [annual allowance] if not maxed them. 

Fixed above (typo?). The lifetime allowance is the total pension pot, so both contributions and growth. The annual allowance is contributions only.

Are you sure growth is not included into the annual allowance?
https://www.pruadviser.co.uk/knowledge-literature/oracle-plus/annual-allowance/#

https://www.civilservicepensionscheme.org.uk/members/pension-savings-statements/annual-allowance/