Pension for wife

[icemancomeths]

I am an IT contractor with a limited company currently paying into a stakeholder pension. My wife earns very little and doesn't have much of a pension contribution. She is 50% shareholder.

Is it possible to setup a stakeholder pension in her name also, therefore we could both take advantage of the 25% tax free lump sumps etc?

Regards

[SueEllen]

Most people here pay into SIPPs for their company pension and the lazy ones amongst us use index tracking funds.

If your wife is an employee and/or director of the company you can set up a company pension for her.

If she isn't an employee and/or director then any pension set up must be done independently of the company and money paid in must come from yours (either hers or yours) post tax income.

A shareholder legally has no responsibilities to the company so you cannot set up a company pension for a shareholder.

In short if you want to pay into her pension now from the company you cannot.

[ASB]

I fail to see how you get any real advantage. After all if the company pays more into your pension instead it achieves the same effect. Though is you were aiming for amounts that would make you a higher rate taxpayer from the pension incom I guess it could have an effect.

As said above you can contribute the company cant.

you could of course give here a job. No pay, but sacrifice salary to be employer contribution into pension.

there is a risk of this being disallowed for ct purposes however I have a recollection of some guidance saying the xeminimus amounts of 3600 per annum should be allowed.

of course mrs could always do enough admin to jusify the payments.

but the obvious thing is just to pay more to your own surely.

[mudskipper]

I fail to see how you get any real advantage. After all if the company pays more into your pension instead it achieves the same effect. Though is you were aiming for amounts that would make you a higher rate taxpayer from the pension incom I guess it could have an effect.

As said above you can contribute the company cant.

you could of course give here a job. No pay, but sacrifice salary to be employer contribution into pension.

there is a risk of this being disallowed for ct purposes however I have a recollection of some guidance saying the xeminimus amounts of 3600 per annum should be allowed.

of course mrs could always do enough admin to jusify the payments.

but the obvious thing is just to pay more to your own surely.

Depends if you want to contribute more than the annual limit (40K?)

[Contreras]

Depends if you want to contribute more than the annual limit (40K?)

The level of remuneration also needs to be justified. Basically, whatever level of salary could be justified for the role you could pay that direct to a pension instead (salary sacrifice). The wife is not a fee earner so £40k would be impossible to justify.

Btw, I believe there is a quirk in the rules which allows up to £80k contribs in certain cases, this current year only. No use to the OP though.

[ASB]

One other point. Mrs is stated as earning very little. If this is less than her personal allowances then corporate contributions (even if the wholly/exclusively hurdle is jumped) would be inefficient from a taxation point of view.

best bet here is personal contributions of upto the higher of income received ived or 2880. Tis is of course because it is free money.

Tax relief is given. Even though tax was never paid anywhere in the chain in the first place.

[icemancomeths]

Thanks for all the answers, I am actually just going through the process of adding her as an employee so I guess the SIPP option would be promising.

I'm guessing I could still continue my stakeholder contribution part and open up a SIPP in her name then?

[WordIsBond]

Yes, you can do that.

There's something to be said for making her an office holder (director or secretary). It is easier to justify a salary because of the corporate responsibility / legal liability she incurs. If she is an employee but not a director, I think you might have to go through the pension auto enrolment mess, but is she is a director I don't think that is necessary. And as a director or secretary, if you end up retaining funds in the company and eventually winding it up, there are tax advantages under entrepreneur's relief if she's an office holder.

I suspect HMRC will frown on any large contribution to her pension if she is not bringing funds into your company. If you make her a director and pay £8060 salary a year (max salary without any NI tax), I doubt anyone would say anything about a £3600 pension contribution. Make sure you run it by your accountant.

[Contreras]

I suspect HMRC will frown on any large contribution to her pension if she is not bringing funds into your company. If you make her a director and pay £8060 salary a year (max salary without any NI tax), I doubt anyone would say anything about a £3600 pension contribution. Make sure you run it by your accountant.

If you believe £8k salary is justifiable (in HMRC's eyes) then paying that as a pension contribution instead should be equally acceptable - the level of remuneration is the same, which AFAIK is all HMRC would care about.

Equally £8k could be paid as a salary and then made as a personal contribution, up to 100% thereof.

The £3600 limit is what can be paid personally and receive tax relief regardless of salary, in other words no need to be an employee for this, it could come from dividend income.

As for what's best for the OP... ? I dunno and depends on what is trying to be achieved.

[northernladuk]

Good luck trying to convince anyone that a bit of paperwork/filling/support is worth 8k a year. If there isn't a job in your ltd you can't just make one up and pretend you are all above board.

All that said if you are fully intent on using your wife as nothing more than a tax mule then just fill your boots. Just hope no one comes asking too many questions.