Company retained profit in the long term

[Pegasus]

And as a bonus, any money paid into a pension is also out of reach to Hector if he comes sniffing around with respect to IR35.

Thanks FredBloggs.

Can you please provide more details of how that works (will also try to search for other threads which might have discussed this earlier). Do pension contributions reduce your IR35 liability in case of a successful challenge by HMRC?

Thanks.

[SueEllen]

Thanks FredBloggs.

Can you please provide more details of how that works (will also try to search for other threads which might have discussed this earlier). Do pension contributions reduce your IR35 liability in case of a successful challenge by HMRC?

Thanks.

Money is put in a pension before taxes are applied.

In addition if someone has a claim against your company's assets or, in the worse case, you*they cannot get their hands on the money tied up in a pension. Pensions are considered in a divorce cases but it depends on the circumstances of the divorce and the other assets available.

*I've heard of cases where the directors have been personally liable to pay money back that their companies borrowed in one form or another forcing them in to bankrupcy. Their pensions weren't touched as they weren't old enough to claiming them yet.

[Pegasus]

Time to look in to them in detail then so you can make an informed decision rather than one of the cuff. 30's is the perfect age to be looking at a pension, young enough, money coming out of your ears. Do you want to try saving 100's of K for one when you are 40-50, slowing down, family, wanting to retire early etc etc... that's the whole point of a pension. I think the 'I am 30 I don't need a pension' stance couldn't be more wrong.

Who knows where contracting will be in 10 years and if it is on it's arse where is your pension money going to come from? You think you will be able to save enough in less than 20 years to keep you in a comfortable life for potentially the next 50 after retirement?

Yes, point taken and I agree that having a retirement plan is very important. And thats why I have started thinking on those lines now.

Is it right that if one dies shortly after 55 (assuming that is the age when you can draw down 25%), then he effectively loses 75% of the pension contributions made over 2-3 decades? And if one dies before that age limit, then all contributions are lost? (Sorry if that sounds silly, I will try to read up more about UK pensions shortly, just voicing/clearing my primary concerns here)

Wondering if a carefully selected buy-to-let portfolio may be a better retirement plan?

All thoughts / views welcome.

Thanks.

[northernladuk]

Money is put in a pension before taxes are applied.

Indeed... Put your details in this calculator then ask yourself if it is a good idea or not....

Says the following for me...

For each £100 contributed, your take home pay only reduces by £60. The tax man pays the rest!

Bargain!

[SueEllen]

Indeed... Put your details in this calculator then ask yourself if it is a good idea or not....

Says the following for me...

Bargain!

Even the way we do it - straight from company coffers- it's an expense i.e. pre-tax income.

[SueEllen]

Yes, point taken and I agree that having a retirement plan is very important. And thats why I have started thinking on those lines now.

Is it right that if one dies shortly after 55 (assuming that is the age when you can draw down 25%), then he effectively loses 75% of the pension contributions made over 2-3 decades? And if one dies before that age limit, then all contributions are lost? (Sorry if that sounds silly, I will try to read up more about UK pensions shortly, just voicing/clearing my primary concerns here)

Wondering if a carefully selected buy-to-let portfolio may be a better retirement plan?

All thoughts / views welcome.

Thanks.

Before getting involved to buy-to-let talk to people who are landlords and the issues they have. You need to go into it with your eyes wide open. Estate and letting agents are as useless (and actually can be more dangerous if things go wrong) than recruitment agents.

In addition quite a few of the contractor/self-employed landlords I know have one or more buy-to-let properties plus a SIPP - spreading their risk.

[northernladuk]

Before getting involved to buy-to-let talk to people who are landlords and the issues they have. You need to go into it with your eyes wide open. Estate and letting agents are as useless (and actually can be more dangerous if things go wrong) than recruitment agents.

In addition quite a few of the contractor/self-employed landlords I know have one or more buy-to-let properties plus a SIPP - spreading their risk.

Totally, on all points! I have SIPP and property and also am trying to pay my mortgage off quicker than normal all in an effort to spread the risk. Knowing me I will want to retire right in the middle of a house crashing or global stock market meltdown, possibly both so feel it is better not to have all my eggs in one basket. I wouldn't have said getting all that in place in your 30's was essential just yet but certainly the time to start thinking about it and planning.

[Pegasus]

Thanks SueEllen and NorthernLadUK.

Yes, I agree that pensions are very tax effective.

My primary concerns so far have been (1) the accessibility in case we need the money for any reason earlier, (2) the complexity of international rules in case we shift outside UK in a few years and (3) the potential of losing your contributions in case you don't live long enough.

Will look into more details though to find out if the above concerns are even valid or not.

Regarding point (3) above, if one dies before retirement, are all the pension contributions lost, or does the family get anything?

[TheCyclingProgrammer]

Can relate to OPs question to a large extent.

Only 6 years contracting and fair bit of cash already accumulated in the limited company (after taking out ~80K per year). I don't particularly like the Pensions option, so have ruled that out for the time being. What else can I do with the cash lying in the company account, without taking a direct tax hit by withdrawing it?

Is it ok to buy a buy-to-let property, and let it through the company? (Even after rental taxes etc, it would still be far better than saving rates I think)
Or does that make it risky from the viewpoint of being treated as an investment company?

Any other options/ideas most welcome.

Thanks.

According to plenty of accountants here:
Is a company a trading or investment company ? | AccountingWEB

Buying to let is largely considered to be property investment rather than trading.

Further, the definition of "investment company" in HMRCs eyes, whilst arguably open to interpretation, *is* defined and backed up by case law.

any company whose business consists wholly or partly in the making of investments

CTM08040 - Corporation Tax: management expenses: investment company - with investment business

Note the word "partly".

Definition of "making investments" further defined and backed up by case law here:
CTM08050 - Corporation Tax: management expenses: investment company - business of making investments: case law

That said, it's not something I'd be comfortable deciding myself. I'd ask my accountant for their opinion.

Edit: this link might actually be more informative:
http://www.hmrc.gov.uk/manuals/ctmanual/CTM60710.htm

[northernladuk]

Thanks SueEllen and NorthernLadUK.

Yes, I agree that pensions are very tax effective.

My primary concerns so far have been (1) the accessibility in case we need the money for any reason earlier, (2) the complexity of international rules in case we shift outside UK in a few years and (3) the potential of losing your contributions in case you don't live long enough.

Will look into more details though to find out if the above concerns are even valid or not.

Regarding point (3) above, if one dies before retirement, are all the pension contributions lost, or does the family get anything?

Do you think anyone would have a pension if it got lost when you die?!?!?!??!

Google is your friend.. Have a read of this for example...

Wealthtime :: SIPP Benefits

If you die before taking benefits from your SIPP:
- You can nominate your dependants to receive benefits and they can choose:
- A lump sum.
- Income payments from the SIPP paid as drawdown pension.
- Annuity purchase.