SIPP - 0 - £400,000.00 in 11 years - is this a realistic plan?

noitsnotme

The funds can come from savings and other sources but your contributions to the pension are still limited by your earnings.

Dazed_and_C0nfused

He actually said this but you hadn't mentioned salary sacrifice.

If you are salary sacrificing that £830 employee contribution you will not get a 20% tax uplift. 

To get the 20% uplift you would need to contribute post tax salary , so money that's already been taxed. 

(Or from sources such as inheritance/gifts where you haven't been personally taxed)  

Salary sacrifice means you agree to a lower salary in return for your employer contributing more to a pension.  As they are employer contributions no tax relief is added.

A low earning director using salary sacrifice isn't a situation I have come across before.

It would mean you no longer get credited with a qualifying year for NI purposes which could cost you ~£800 in voluntary NI if you need to add further qualifying years.

And that's assuming you are legally able to even do it.  There are NMW limitations with salary sacrifice although they may not be relevant to a director.

Your accountant is still the person to speak to about the most tax efficient option.

Dazed_and_C0nfused

scrooge2008 said:

To get the 20% uplift you would need to contribute post tax salary , so money that's already  been taxed. 
(Or from sources such as inheritance/gifts where you haven't been personally taxed)  

Is this true?

No it isn't.  There is no rule which says a personal contribution must be paid from money that has already been taxed.

If that was true it would mean someone who through their working life earning say £10,000 each year with no other taxable income couldn't contribute to a pension 😳

scrooge2008

Thanks D and C - as mentioned before I have spoken to the accountant and he will not advise on pensions and I do not need any further NI years.

noitsnotme

My understanding is that you can make pension contributions directly from your limited company (therefore saving corporation tax) and you are only limited by the annual allowance (now £60000).  You are not limited by how much you earn as an individual.

https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/employer-contributions-and-tax-relief/

Although you may need to be careful of making “excessive contributions” in the eyes of HMRC

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46035

noitsnotme

You don’t get a tax uplift if your company pays directly in to the pension.  The saving and the benefit you get is by not paying corporation tax on the amount contributed (and possibly not paying NI compared to if it were to be paid as wages instead).

scrooge2008

noitsnotme said:

You don’t get a tax uplift if your company pays directly in to the pension.  The saving and the benefit you get is by not paying corporation tax on the amount contributed (and possibly not paying NI compared to if it were to be paid as wages instead).

Not sure this is necessarily correct.  Pension Bee in its self employed SIPP gives you the option to put in £9960.00 a year into the earnings section and get the tax relief up to £12,570 and also to put employer contributions in as LTD company, so you can benefit from both.  It looks like this is going to become more mainstream in 24/25. 

Tax relief on pension contributions | MoneyHelper

noitsnotme

What I said is correct, I think you are just muddling two different types of contributions up.

If your Ltd co pays £1000 directly in your pension, the pension will increase by £1000.  There is no additional tax uplift.

But your company now doesn’t have to pay 19% on that £1000 so it’s saved £190 in tax.  So the £1000 in to your pension has only effectively cost “you” £810.

My Ltd co pays all pension contributions directly for my wife and I (both directors).  Its all expenses for the company.  We don’t mess around with salary sacrifice or personal contributions.  We also pay ourselves a nominal salary (to gain the NI credits) and dividends.

Last company year we paid £31000 each into our pensions, meaning the company paid a total of £11780 less in corporation tax.  £31000 was credited to each pension, there was no additional tax uplift.

scrooge2008

I understand that but you are employed by your company as well as the employer.  If you paid yourself a salary of £12,570.00 with Pension Bee you could put £9960.00 into their SIPP too and gain an uplift to £12570.00, which to my way of thinking is £2610.00 of free money, it does not have to be post tax money and I am already paying that to myself as a salary. You could also put in all your profits and gain from the NI and corporation tax relief.

noitsnotme

I see where you’re coming from.  I guess that works if you have that extra money spare personally (unless anyone can point out a reason otherwise).  We do pay ourselves a wage of £12570 each but that goes towards normal living costs.  Any extra pension contributions go directly from the company.