Use assets as "pension"?

[Olly]

hmmm so what's the "resolution" on this one?

Realistically I expect an average of about 80K turnover so let's say there's something like 20K left in the company each year after I've had my expenses, paid corportation tax and taken wages and dividend (up to 40K)

If I contract for the next 10 or 15 years then I'll end up with 300 to 400K inthe bank which makes for a tidy pension.

OR

Am I completely missing the point here???
Pension contrubutions are company expenses and therfore tax on them is only paid when I receive the money (not withstanding the 25% tax free chunk)

So I have 3 options
1. Keep the money in the company, pay 21% corporation tax on it and withdraw as untaxed dividends in retirement
(with the added bonus that if I need the bucks in a rush, have time off work etc that I can either close and pay 10% CGT or pay 40% and get my mitts on it pronto)

2. Invest in a pension and pay income tax on the annuity (20%???) but get 25% of the total tax free?

Option 2 is a bit better financially isn't it? with the pros of IR35 innoculation and wider (untaxed?) investment possibilities.
BUT
it ties up my dosh and I can't change my mind

[moorfield]

Swings and roundabouts really - you need to do a mixture of both. In what proportion is entirely up to you.

Personally I'm currently favouring the SIPP route - there I have better options of inflation proofing my hard earned fees and there will be some good buying opportunities in the markets over the next few years. And of course it's all money off Hector's radar!

[IR35 Avoider]

Realistically I expect an average of about 80K turnover so let's say there's something like 20K left in the company each year after I've had my expenses, paid corportation tax and taken wages and dividend (up to 40K)

If I contract for the next 10 or 15 years then I'll end up with 300 to 400K inthe bank which makes for a tidy pension.

OR

Am I completely missing the point here???
Pension contrubutions are company expenses and therfore tax on them is only paid when I receive the money (not withstanding the 25% tax free chunk)

So I have 3 options
1. Keep the money in the company, pay 21% corporation tax on it and withdraw as untaxed dividends in retirement
(with the added bonus that if I need the bucks in a rush, have time off work etc that I can either close and pay 10% CGT or pay 40% and get my mitts on it pronto)

2. Invest in a pension and pay income tax on the annuity (20%???) but get 25% of the total tax free?

Option 2 is a bit better financially isn't it? with the pros of IR35 innoculation and wider (untaxed?) investment possibilities.
BUT
it ties up my dosh and I can't change my mind

I would put the 20K in a pension, on the grounds that money left in the company could be confiscated to pay an unexpected employers NI bill (following an IR35 investigation) that you might not otherwise pay. If this doesn't persuade you, set your self a target for savings in the company for dealing with the unexpected (e.g. 40K savings would allow you to survive a year without working without cutting personal income) then put the rest in pension. Or, if you really can't make up your mind, plan C; 10K into pension and 10K left in company each year.

[ace00]

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 ????

Informative thread. 1 question, what does this mean: "acceptable to withdraw divs below the tax threshold each year and pay 0% " ?

As far as I'm aware there is no corporation tax threshold. Am I wrong?

[Moscow Mule]

Informative thread. 1 question, what does this mean: "acceptable to withdraw divs below the tax threshold each year and pay 0% " ?

As far as I'm aware there is no corporation tax threshold. Am I wrong?

He's talking about personal taxation in this instance, not corp tax as this has already been paid on the profits in previous years.

Edit: So the idea is, you have a lump of cash in the company after 30 years of working. You can withdraw this tax free via dividends (10% & -10% tax credit) as long as you stay under the higher rate threshold.

There's no corp tax threshold.

[moorfield]

Edit: So the idea is, you have a lump of cash in the company after 30 years of working.

In the very long term outlook 20-30 years that cash may be worth less in real terms.

You'll pay corp tax on any interest earned - rates for small cos are going up in the next few years.

And don't forget the rampant inflation coming our way.

[Moscow Mule]

In the very long term outlook 20-30 years that cash may be worth less in real terms.

You'll pay corp tax on any interest earned - rates for small cos are going up in the next few years.

And don't forget the rampant inflation coming our way.

I didn't say it was a good idea, I said that was the idea

[Olly]

Could someone answer this bit please?

"Pension contrubutions are company expenses and therfore tax on them is only paid when I receive the money (not withstanding the 25% tax free chunk)"

by tax - I mean all forms, so that includes corporation

My way of working, whilst the IT contractor norm, isn't particulalry IR35 friendly so innoculation of assets appeals and 55 is only 20 years way.

[moorfield]

Could someone answer this bit please?

"Pension contrubutions are company expenses and therfore tax on them is only paid when I receive the money (not withstanding the 25% tax free chunk)"

by tax - I mean all forms, so that includes corporation

If you have £1000 profit in yourco, you'll pay 21% in corp tax (£210).

Instead if you put that £1000 into a pension, you'll have no profit in yourco, so you won't pay any corp tax.

At 55, assuming your £1000 has kept up with inflation, you can then take £250 lump sum free of tax.

The remaining £750 will be taxed at basic rate over a number of years.

Or if you're really clever with your other investments, assets, income and the pension drawdown thingy, and you live a long time you might be able to get it all out under the personal allowance.

[Olly]

soooo...with corporation tax on the up (and applied to interest) and the risk of IR35 everpresent I've decided to invest a decent chunk in pension.

I'll leave enough in company for rainy days or career breaks (let's say no more than 50 or 60K) and if I never use it then I'll pay it out as a dividend when I retire.

job done - right pensions - where di I get one of them
i only take 6K salary so 20K pension doesn't look lovely to Hector...oooooh well