Putting all your earnings into a pension

[expat]

...
Also, I guess the one weakness is that if you die young you will have never seen most of the money... and it wouldn't form part of your inheritance.

No: as long as it is a pension fund (e.g. a SIPP) then it is your money; or your estate's if you die.

After you convert the fund into an annuity (if you do), then the conditions of the annuity determine what happens if you die. It is common (but by no means obligatory) to buy an annuity that ceases on your death, because the payouts are larger then (obviously).

[pmeswani]

It is probably the safest form of "tax avoidance". You get 40% tax relief on the way in, and even though you would be taxed on the income from the pension, you can take part of it as a tax free lump sum. With the benefit of hindsight I would probably have gone PAYE and done this instead of getting involved with IR35 or whacky schemes.

PS. if you get a SIPP you can also manage it yourself and have access to very wide range of investments

I found with in my SIPP that any personal contributions (up to the salary limit) attracts 25% tax rebate on the basic rate. So you may wish to consider making both company and personal contributions when taking out a SIPP (if you decide to go down that route).

[moorfield]

You get 40% tax relief on the way in, and even though you would be taxed on the income from the pension, you can take part of it as a tax free lump sum.

IIUIC at 65 yrs old the age related basic rate allowance is £9k ish pa before tax, and one could use the SIPP rules to extract just up to that amount each year - ie not forced to take more. Unsecured pension I think they call it. (Having read through the Sippdeal smallprint that certainly seems to be implied.)

If your pot can give you that kind of income after the 25% lump sum you'll be doing better than most anyway. Additionally if you sheltered and reinvested the 25% lump sum - his/hers ISAs, national savings etc. - then my back of the envelope calculation (£9k * 4/3) gives you an income of £12k ish pa tax free (in today's money of course), in addition to any other investments you might have sheltered previously.

[expat]

IIUIC at 65 yrs old the age related basic rate allowance is £9k ish pa before tax, and one could use the SIPP rules to extract just up to that amount each year - ie not forced to take more. Unsecured pension I think they call it. (Having read through the Sippdeal smallprint that certainly seems to be implied.)

If your pot can give you that kind of income after the 25% lump sum you'll be doing better than most anyway. Additionally if you sheltered and reinvested the 25% lump sum - his/hers ISAs, national savings etc. - then my back of the envelope calculation (£9k * 4/3) gives you an income of £12k ish pa tax free (in today's money of course).

And remember that if you manage to get capital gains in any investments there are several ways of not paying CGT on them:
- hold in ISAs
- some NS&I products
- Gold sovereigns
- anything up to the CGT Annual Exempt Amount (currently 9600.00)
- your main home.

So between the tax-free 25%, the income tax personal allowance, and judicious realising of capital gains under the exempt amount, you can get quite a lot out without paying any tax.

[glashIFA@Paramount]

TazMaN

I am not an IFA, and you would be better taking advice from one for your particular circumstances, I would also make sure your IFA is working togeather with your accountant so the tax angle is correct.

There is now a maximum limit that you can put into a pension as has been posted by others. There is also a life time limit.

Whether its tax deductible for coporation tax is a different matter though. For an expense to be deductible it must be "wholly and necessarily for the purposes of the business".

Whilst in my experience contributions up to the salary paid wont normally incite the interest of HMRC, any payments in excess of this may well do.

You need to take advice from your accountant as to what he/she thinks is the maximum your company could contribute for your circumstances and previous contribution history.

Pension planning is a great tax tool, both for inside and outside ir35 contractors and done efficiently it really uses your money well, good luck with your tax planning.

Phil

The Annual Allowance for 2008/09 is £235k. The issue of relief comes with whether its a personal contribution or an employer contribution.

If you are a £5k a year salary, £30k a year dividend type person and making a personal contribution then you are restricted to a contribution of £5k (you can make a larger personal contrib but will only get tax relief on the £5k - dividends are not pensionable "earnings").

However, an employer contribution of £35k in this instance would get Corp Tax relief on the full amount. In fact, an employer contrib of up to £235k (if the company had the funds!) would receive Corp Tax relief on all of it, regardless of the employees salary. This passes the "wholly and necessary" test, but as always, I'd seek clarification from the Local Inspector of Taxes before the contribution is made.

[contractor79]

But can you opt to take your pension early, say at 45? Or is there a minimum aged of 55 enforced?

it's 55 minimum

Also, I guess the one weakness is that if you die young you will have never seen most of the money... and it wouldn't form part of your inheritance.

not for mine, they would release the bid value of the investments if I died

[pmeswani]

it's 55 minimum



not for mine, they would release the bid value of the investments if I died

What about medical retirement?

[contractor79]

What about medical retirement?

what's that?
I've got insurances to cover from ill-health until age 55

[pmeswani]

what's that?
I've got insurances to cover from ill-health until age 55

It is something my dad was forced to do about 15-20 years ago.

http://handbook.nics.gov.uk/content/...al-grounds.pdf - an example of medical retirement. Some people can claim their pension earlier than the 55 year old rule.

[contractor79]

It is something my dad was forced to do about 15-20 years ago.

http://handbook.nics.gov.uk/content/...al-grounds.pdf - an example of medical retirement. Some people can claim their pension earlier than the 55 year old rule.

oh ok, I wasn't aware of that, thanks