Drawing out of pension to cover sole trader loss

Grumpy_chap

BigGirlPants said:

He normally has between £15,000 and £20,000 taxable profit annually.

If his normal earnings (sole trader profits) are typically in the region of £20k, can he really afford a £40k car, whether via a tax-efficient route, or via a lease / PCP, or whatever?

BigGirlPants

Personally, I don't believe he can, and that's why he wants to draw the funds out of his pension.

BigGirlPants

I just wanted to say I'm so grateful to everybody who has commented and made helpful and useful suggestions.

 I didn't know where to turn and I no idea all of you would be so helpful.

SVaz

I would use 75% of the deposit £3600 as an expense in year one as you would have already shelled out that money,   Plus  75% of 11 monthly payments, if the deposit counts as month one. 

If using cash basis for expenses then only £500 of yearly interest is allowable, I’m not sure about traditional accounting as I use Cash basis. 

Actually leasing might not entail ‘interest’ at all. 

BigGirlPants

Thank you, he does use cash basis. 

It's interesting that only £500 of Interest is allowable. 

I wasn't aware of that but then I've never looked at anything like this before.

I don't think leasing entails interest but personal contract higher does. We haven't looked into it very much but it looks like the interest is 3.9% which does work out at over £1000 pa.

Maybe a lease is for many reasons going to be the best way to proceed

.

Marcon

BigGirlPants said:

Thank you, he does use cash basis. 

It's interesting that only £500 of Interest is allowable. 

I wasn't aware of that but then I've never looked at anything like this before.

I don't think leasing entails interest but personal contract higher does. We haven't looked into it very much but it looks like the interest is 3.9% which does work out at over £1000 pa.

Maybe a lease is for many reasons going to be the best way to proceed

.

I think you've done a fantastically good job, and the fact you've delved into the inscrutable worlds of both pensions and tax tells us all we need to know about how much you care - and also how concerned you are to stop him doing what you see as the 'wrong' thing.

From everything you've said, he wants to end up owning a rather nice new car - so now 'all'(!) you need to do is ensure he gets there in the most efficient way. If that involves cashing in part of his pension because 'that's what he wants to do' - so be it, but laying out a range of options to get to the same end goal might just persuade him to get there another way.

BigGirlPants

Marcon said:

BigGirlPants said:

Thank you, he does use cash basis. 

It's interesting that only £500 of Interest is allowable. 

I wasn't aware of that but then I've never looked at anything like this before.

I don't think leasing entails interest but personal contract higher does. We haven't looked into it very much but it looks like the interest is 3.9% which does work out at over £1000 pa.

Maybe a lease is for many reasons going to be the best way to proceed

.

I think you've done a fantastically good job, and the fact you've delved into the inscrutable worlds of both pensions and tax tells us all we need to know about how much you care - and also how concerned you are to stop him doing what you see as the 'wrong' thing.

From everything you've said, he wants to end up owning a rather nice new car - so now 'all'(!) you need to do is ensure he gets there in the most efficient way. If that involves cashing in part of his pension because 'that's what he wants to do' - so be it, but laying out a range of options to get to the same end goal might just persuade him to get there another way.

I really appreciate your message as I don't agree with what he wants to do, but he's my husband of 25 years and he's a very good man, and I feel it's important to him and therefore I need to support him.

Thank you to all who have commented.

Grumpy_chap

BigGirlPants said:

Maybe a lease is for many reasons going to be the best way to proceed

.

I know you are supporting him in this, but maybe (irrespective of how it is financed) having a brand new £40k car when earning an income of around £20k is simply not the best way to proceed.  However it is done, that car will make a big impact - a strain even - on his finances.

You have not mentioned your financial position, but I assume with 25 years married your finances are essentially joint and you do not have a massive income that has not been referenced.

It may well be best to start at the end and work back to whether a car is affordable.

He has suggested drawing pension early, and accepts he will have to work beyond "normal" retirement age.  
What age does he hope he will be able to hang up his boots?
Will he have full state pension?  That will be around £11.5k at today's rate.  If he has not accrued enough NI contributions for full state pension, can he do so?  Voluntary contributions may be possible.
He has a pension fund of around £120k.  Assuming a "late" retirement, he may be able to draw £7k per year from that (there are many in this forum who would suggest that is too much to be "safe").
Retirement income could be around £18.5k per year.
If he devalues the pension by one third, that will not be the case.

Then prepare a budget for "now" - current income and expenditure.
There are many tools but the SoA (Statement of Affairs) used in the DebtFree Wannabee areas of the forum is a suitable format.  You don't need to be in debt to use it; the SoA is suitable for all.  Nor do you need to share the outcome with anyone - just use it as your own tool to inform your own decisions.  Many people seem to like the "LemonFool" SoA template.
Once you have an SoA, you will be able to see how much spare funds are available, which could be used to pay for a car.

You can also run scenarios in the SoA, for example dropping a TV subscription and how much more does that give to pay for a car?
Or, the "now" model and add in the car costs.

With "now" and possible SoA budgets, you can work back from monthly payments to how much could be available for a car.  The choose the appropriate finance route, whether a loan, or PCP, or lease, to achieve that car and not place everything else under duress.

[Deleted User]

Grumpy_chap said:

BigGirlPants said:

Maybe a lease is for many reasons going to be the best way to proceed

.

I know you are supporting him in this, but maybe (irrespective of how it is financed) having a brand new £40k car when earning an income of around £20k is simply not the best way to proceed.  However it is done, that car will make a big impact - a strain even - on his finances.

You have not mentioned your financial position, but I assume with 25 years married your finances are essentially joint and you do not have a massive income that has not been referenced.

It may well be best to start at the end and work back to whether a car is affordable.

Exactly this.

Rather than thinking about the car, looking at retirement finance might be a more pressing issue.

Two state pensions and a modest PP might be doable, but what happens when only one partner is left?

Is there enough available to offer anything more than the most basic of retirements?

jimjames

Grumpy_chap said:

BigGirlPants said:

Maybe a lease is for many reasons going to be the best way to proceed

.

Retirement income could be around £18.5k per year.

It sounds like that might be higher than current salary so dropping it might not be such an issue. Not suggesting that buying a £40k car is the best idea, the pension I'd want is a lot higher but the OP's other half might well be content with a bit less than their previous earnings.