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

scrooge2008

Your way does sound very efficient and with hindsight I wish I had done that years ago, but have ample savings so it makes sense for me to try and maximise the return on them.

noitsnotme

Yes your way seems sensible if you have the spare funds to also do the personal contributions.  We’re still at least 8 years away from accessing the pensions (at 57) and with a couple of teenagers to feed, normal living costs are not all that cheap 😄

billy2shots

scrooge2008 said:

Well why has Billy said it does?  He seems to be saying the opposite to you? which is perhaps why I am confused??

You say you are making employee pension contributions. That will be paid without being taxed. You can not then claim an extra 20% for this.

If you made these pension contributions direct from personal savings then you could get 20/40% back. 

Are you paying from personal savings or business  savings?

scrooge2008

I could pay from personal savings to get the uplift, but a more cost effective way could be to pay from business profits, if this were legal.  Accountant has said that all pension contributions to Pension Bee could be offset against Corporation Tax and NI, 

In their self employed SIPP you can contribute directly from the company as a Limited Company Contribution and also into the earnings section of the SIPP up to relevant earnings, which for me would be contributing the £830.00 a month and getting the uplift to £1037.50.  From a link above it appears that employees who don't pay tax are currently being penalised by many pension schemes and there are moves to change this and perhaps Pension Bee is ahead of the curve?  As directors of Limited companies are not subjected to national minimum wage, I haven't seen why the above isn't possible and I will go back to my accountant for him to check it out with his director as think this is more an accountancy issue than a pension issue.

noitsnotme

I think you’re still confusing the 2 types of contributions.  Any contribution directly to the pension from the company will not receive a tax uplift.

To receive the tax uplift on the personal contributions they have to come from “taxable” pay - it’s just that any salary under £12570 doesn’t actually pay any tax due to the personal allowance.

So you can’t pay the personal contribution part directly from your company, you will need to pay yourself first and then contribute to the pension from your personal funds to receive the tax uplift on that part.

Alongside that, the company can make additional direct pension contributions, reducing corporation tax, but no tax uplift in the pension.

At least that’s how I understand it.

scrooge2008

Tax relief on pension contributions | MoneyHelper

Hi noitsnotme - you don't have to have taxable pay to receive the uplift, but you can only get an uplift up to your relevant earnings which for me would be the £12,750.00.  I think the issue is getting the right vehicle for a directors pension.

noitsnotme

I don’t think I’m explaining it very well.

Look at the ‘How does pension relief work’ section on your link.  I think you’re referring to the relief at source section.  This is where the company pays the pension contributions on your behalf from your wages.  So any tax is paid first (none if you are within your personal allowance) and then the pension contributions are made on your behalf.  You should get the tax uplift in the pension but I’m not sure if there are any strange rules with being a director that would affect it.  This is not really direct contributions from the company as it still needs to go through payroll and be shown on your payslips.  But I think it achieves what you want, if it’s allowed.

The alternative is you pay yourself as normal and then you contribute to the pension from your personal funds.  This will achieve the same result.

scrooge2008

Hi noitsnotme, I have spoken to the accountant and he says I can continue to take a salary up to £12,570.00, as normal, and also put £830.00 a month into the SIPP, from company income.  The £830.00 will not be counted as an allowable business expense so will not save on NI and corporation tax, but will mean I can get the tax uplift without paying tax and still keep my salary.  Think that might work out more tax efficient for me as 25% uplift as opposed to saving 19%.  He said it was fine to pay in the £25,000.00 from company profits in this business financial year and that would save the 19% corporation tax.  He is going to do some management accounts before end of the company financial year to see if more can go it.  Thanks for all your feedback, got me thinking what would work out best.

noitsnotme

I’ve not heard of that method before, it doesn’t sound correct to me.  We’ve been paying £500 a month in to the pensions from the company but were never given the option of not claiming it as a business expense and claiming tax uplift instead.  That was following advice of our accountant and an IFA.  I will be very surprised if they have both been wrong all this time.

Could you ask your accountant if he can provide a website link to an explanation?  I would be interested in pursuing this with my account if it is indeed a thing.

noitsnotme

What you’re talking about is essentially salary sacrifice but there is no tax uplift on the pension contributions, it just means the employee pays less tax on their earnings.  From your link…

”Salary sacrifice  arrangements

A salary sacrifice arrangement is an agreement between you and your employer.

It involves you giving up a part of your salary in return for your employer making a contribution to your pension.

If you’ve agreed this with your employer, the whole contribution is treated as coming from your employer. This means you don’t get any tax relief as such.

However, by essentially giving up a portion of your salary, the amount you get paid is reduced. This decreases the amount of Income Tax and National Insurance you pay.”

I can’t see anything in the article you linked to that describes what your accountant is proposing.