Benefit of Pension to director/shareholder

rjay

I am 35 and have always been self-employed. A pension has been low on my list of priorities and still is, however I need to start sooner or later.

I own two limited companies and aside from about £5k per year of miscellaneous income which is taxed through my self-assessment return, all of my earnings (from the Ltd.Co's) are dividends.

I have no staff so my company doesn't operate PAYE. I presume that the only way to pay money into my pension is to take it out as dividends and then transfer it into my SIPP - correct ?

Does this mean that I only get basic-rate tax relief and therefore don't get as much tax benefit from a pension as a salaried worker ?

Retired_I.F.A.

3600 a year or your salary I believe is the max you can contribute p/a now so if you intend to keep to the bulk of you income coming in via dividends it may well be worth looking into a SSAS then in later years switch to all salary to up the tax free cash available. Possibly then you could for the sake of 3 years or so losing out by not taking dividends take the whole of the pension fund out tax free.

SIPP / PP max tfc =25% of the fund.
SSAS max tfc= higher of 1.5 times final salary or 25%

I've been out of the buisness 6 year so i'm a bit on the rusty side you really need to talk to a current IFA.

ManAtHome

Your company can pay into a pension without deducting employers or employees NI as well as income tax (up to 200k+ pa...).

Retired_I.F.A.

I've been out of the buisness 6 year so i'm a bit on the rusty side you really need to talk to a current IFA.

See what I mean :LOL: I'm confused now.

The company could only contribute a certain amount depending on the salary of the employee, I've presumed the new company max is the same as the new max contribution payable by the employee.

Best keep me gob shut methinks

EDIT..

No, it seems nothing has changed regarding employes contribution to a SSAS although there possibly have been some changes as I dont remember all the rules nor have I read all of this but it explains SSAS's pretty good and I think my saying all the fund could possibly be had tax free still applies....

SEE: http://sharingpensions.co.uk/corporate_benefits_ssas.htm

ManAtHome

It's all the "A day" stuff - my accountant was always wearing his calculator batteries to the bone to avoid over-funding my pension. As you quite correctly remember, there were limits on what you could get out depending on years of service, best 3 years salary in the last 13 etc etc. Now you're limited only (I'm led to believe...) by annual funding up to the £200k+ (lol) and a "lifetime fund" limit around £1.2 million.

rjay

ManAtHome,

So I'm completely clear on this, we're talking about a bog-standard SIPP in my name, with payments coming direct from the Ltd.Co bank account ? And if I drew, say £10k in dividends, there is nothing to stop the company paying £20k into my SIPP if it/I wanted to ?

ManAtHome

You need to quiz your accountant - everyone will have a different "sweet spot" when mixing salary, dividends, and pension contributions. For example you may be making a gain now taking divis instead of salary, but losing out long-term on S2P. I've paid more than my salary into my SIPP the last 2 years, but my salary has been higher than dividends - your mileage may vary...

Retired_I.F.A.

SIPP CONTRIBUTIONS...
The maximum contribution that attracts tax relief for someone with earnings is the lower of £225,000 and 100% of earnings in each tax year. Contributions above 100% of earnings can be made but no tax relief is available on the excess. A tax charge will be imposed on any contributions over £225,000 in a tax year.
If you do not have any earnings, the maximum tax relievable contribution is £3,600 (gross) in any tax year.
Contributions by individuals are paid net of basic rate tax; contributions by employers are paid gross

source:
http://www.pensionsadvisoryservice.org.uk/specialist_pension_arrangements/sipp/

SSAS CONTRIBUTIONS
The maximum contribution that attracts tax relief for someone with earnings is the lower of £225,000 and 100% of earnings in each tax year.


Source:
http://www.pensionsadvisoryservice.org.uk/specialist_pension_arrangements/ssas