Retained earnings pension contribution
If you are earning a salary from another source and have retained earnings in your company making a company contribution to a pension scheme is not very effective as
a) You would have to draw a salary from the company to justify the pension contribution (on money already subject to CT) and
b) Your pension payments would be from money already subject to CT.
There is as indicated some uncertainty as to how much your company can contribute into a pension scheme if it is a high fraction of the salary drawn from the company. Best not to bother with the uncertainty as there are easier ways of achieving what you want.
Winding up your company is a possibility although new CGT rules come into force April 6.
If you are earning a salary elsewhere take the retained earnings from your company as a dividend and pay this into your pension. As long as the gross pension contribution is less than your salary then the pension contribution will be subject to tax relief.
Remember that if you make a contribution to a personal pension personally (i.e. not through a company) the contribution is a net amount and basic rate tax relief will automatically be added on top (i.e 7800 becomes a 10K contribution). This automatically negates the CT. If you are a higher rate tax payer the you will be able to reclaim tax on your self assessment form to further reduce the net cost.
Oh, yes, on further point. If you are not a higher rate tax payer the amount of basic rate tax relief will drop from 22% to 20% when the basic rate tax rate changes I believe on April 6th this year. (ie you need to contribute 8K net to get a 10K contribution)
Don't trust my advice though - you should take advice as to exactly how much you should contribute based on your circumstances.
If you are earning a salary from another source and have retained earnings in your company making a company contribution to a pension scheme is not very effective as
a) You would have to draw a salary from the company to justify the pension contribution (on money already subject to CT) and
b) Your pension payments would be from money already subject to CT.
There is as indicated some uncertainty as to how much your company can contribute into a pension scheme if it is a high fraction of the salary drawn from the company. Best not to bother with the uncertainty as there are easier ways of achieving what you want.
Winding up your company is a possibility although new CGT rules come into force April 6.
If you are earning a salary elsewhere take the retained earnings from your company as a dividend and pay this into your pension. As long as the gross pension contribution is less than your salary then the pension contribution will be subject to tax relief.
Remember that if you make a contribution to a personal pension personally (i.e. not through a company) the contribution is a net amount and basic rate tax relief will automatically be added on top (i.e 7800 becomes a 10K contribution). This automatically negates the CT. If you are a higher rate tax payer the you will be able to reclaim tax on your self assessment form to further reduce the net cost.
Oh, yes, on further point. If you are not a higher rate tax payer the amount of basic rate tax relief will drop from 22% to 20% when the basic rate tax rate changes I believe on April 6th this year. (ie you need to contribute 8K net to get a 10K contribution)
Don't trust my advice though - you should take advice as to exactly how much you should contribute based on your circumstances.
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