Use assets as "pension"?

[hgllgh]

have you looked into closing the company down claiming ESC16 CGT Entrepreneurs Tax at 10%. (I believe the 10% would also be paid post pension contribution?) You can then invest what you get is ISA's and high interest accounts (savings rates are going up). Ofcourse, you would pay 20% tax ion the interest in the savings account, but 20% on interest is better than 20% of the total sum of money!

Each year you can then syphon off the monies in the savings account into the ISA's giving you the best tax efficiency....

[Olly]

Er...10% is more than 0%
I'm pretty sure it's not as simple as 10% and not "just like that" perhaps someone will correct you?

why would I pay 20% on total sum - the whole idea is to withdraw as dividend in my retirement up to tax threshold and pay 0% income tax.

[hgllgh]

Er...10% is more than 0%
I'm pretty sure it's not as simple as 10% and not "just like that" perhaps someone will correct you?

ok, see what you mean.

so, if you have a whole heap of cash in your business account, its perfectly acceptable to withdraw divs below the tax threshold each year and pay 0% tax as long as any corp tax has been paid on profits?

But if that were the case why is there a need for CGT at all as everyone would just do as you say above and pay 0% rather than 10% CGT ????

[ASB]

ok, see what you mean.

so, if you have a whole heap of cash in your business account, its perfectly acceptable to withdraw divs below the tax threshold each year and pay 0% tax as long as any corp tax has been paid on profits?

But if that were the case why is there a need for CGT at all as everyone would just do as you say above and pay 0% rather than 10% CGT ????

All depends on the numbers and your individual objectives/circumstances.

If you happen to have no other income and contractor co has 400k in it you could just pay a dividend of 40k PA for 10 years.

You could pay a dividend of 400k in one year and lost 25% of it to higher rate tax

you could go ESC16 and with luck only pay 10% on 400k - cgt threshold.

What you get is flexibility and price. Think - what if the company had 10 mill in assets ?

[hgllgh]

But for the army of one man ban contractors that may have anywhere between 100K and say 300K in the business account (after paying relevant taxes/wages etc) they may as well save themselves the 10K / 30K by taking up to 40K per year rather than get the money all in one go and pay the 10%.....

[Olly]

Exactly my thoughts...but it's not 10% is it...look at other posts on the topic!

Honestly - it really does seem like a pension is not a good idea unless it's for IR35 innoculation (to coin an earlier phrase) ....

Is this topic dead now or do others have opinions please?

[hgllgh]

It is 10% .. i have looked at other posts ... there is the usual HMRC convoluted calc but it works out to 10% of the monies left in the business after taxes and wages have been paid.

[IR35 Avoider]

It is 10% .

Didn't CGT completely change on 6th of April this year, rendering all previous discussion redundant? I think the 10% rate was only if business taper relief applied, I think taper relief has been abolished now. (I'm not to clued up on the CGT route, as I went down the taking dividends over a period of years route, on the grounds that 0% is less than 10%, as someone pointed out.)

[Hex]

Didn't CGT completely change on 6th of April this year, rendering all previous discussion redundant? I think the 10% rate was only if business taper relief applied, I think taper relief has been abolished now. (I'm not to clued up on the CGT route, as I went down the taking dividends over a period of years route, on the grounds that 0% is less than 10%, as someone pointed out.)

Taper relief was abolished. But Entrepreneurs relief now exists on the headline rate of 18% for the first £1m (I think) of Capital. The taper relief is 4/9ths meaning the rate is 5/9ths of 18% which is 10%. It's slightly more complicated by when you can take off the CGT allowance, so it will be a bit less than 10% that you pay probably but 10% is a reasonable assumption for rough calculations.

[ASB]

But for the army of one man ban contractors that may have anywhere between 100K and say 300K in the business account (after paying relevant taxes/wages etc) they may as well save themselves the 10K / 30K by taking up to 40K per year rather than get the money all in one go and pay the 10%.....

Quite likely. I agree that for most "one man band" type contractors there may well be a case for most of them to do as you describe. But you originally cast the net somewhat wider. Perhaps everyone wasn't what you meant.