Reply to: Unlimited Pension Contributions?

[Fred Bloggs]

You might also want to do a bit of research on "immediate vesting". This can be useful for some people in some situations.

Thanks for that, it's all part of the master plan. If it all goes nice and tidy for the next 15 years or so, I should be able pull out ~£125k tax free and still have a tidy pot of money to draw an income from alongside two significant deferred final salary pension pots.

[ASB]

Thanks, seems my plans are sound, in today's legislative situation at any rate.

You might also want to do a bit of research on "immediate vesting". This can be useful for some people in some situations.

[Fred Bloggs]

Thanks, seems my plans are sound, in today's legislative situation at any rate.

[Freelancer Financials]

A-day Pension Rule Changes

There was a massive overhaul in pension rules in April 2006. A few of the rules have been subsequently changed or tweaked. Some of the key rule changes are as follows:

Since A-day there has been no limit on the amount of personal contribution that can be paid into a registered scheme, although there is a limit on the amount that can benefit from tax relief.

This will be the higher of £3,600 (gross) and 100 per cent of “Relevant UK Earnings” up to a maximum of £245,000 in tax year 2009/10, rising to £255,000 in 2010/11. This is called the Annual Allowance.

If you still need further clarification on this matter contact one of the specialist contractor accountants that advertise on contractor UK.

[Freelancer Financials]

Pension Contributions from Company

Some of you are confusing a personal pension investment (which is indeed limited to 100% of salary) with the fact that you’re making an employer contribution.

Salary level doesn’t need to have a bearing on an employer contribution and so you should be free to invest all this years contract income into the pension if you choose. Contractors outside IR35 can now make company contributions to a pension of up to £245,000 per year, with a lifetime allowance of £1.75 million. This would obviously represent a very tax efficient method of transferring funds from company into personal hands.

I should mention that you must also have not earned in excess of £150k in either of the past 2 years otherwise contributions will be limited to either 20k or £30k.

[Fred Bloggs]

Interesting, that's basically what I'd like to do, have you had professional advice that putting 100% in is acceptable to HMRC? I'd like to read that BMI if I could find it....

I forget who it was, but I believe one of the regular IFA's posted on here that there was a clarification some time ago from HMRC that essentially said all contributions to a director's SIPP would fulfil the "wholly and necessary" business expense tests up to the annual Ltd Co turnover. I know that's not quite what you asked, but seeing as it will be a few years yet before I can actually do it, it seems pretty pointless to get personal advice on this point right now.

Edit- It might have been on the Shout 99 website that I saw this.

[An old-timer]

Gone but not forgotten..by me anyway

I've searched the HMRC site for the BMI446001 mentioned in earlier posts as giving the OK for large company pension contributions, but that document is no longer available. See for example the link to it from this page:

http://www.hmrc.gov.uk/manuals/ctmanual/CTM08341.htm

I've reported the link as broken to HMRC, in the hope that that they will subsitute a new link to whatever replaced BMI446001 (if anything) but I'm not holding my breath.

[rootsnall]

Interesting, that's basically what I'd like to do, have you had professional advice that putting 100% in is acceptable to HMRC? I'd like to read that BMI if I could find it....

Keep me posted also ! I don't think you'll ever get 100% reassurance but !? What I'd like to know is what would happen if you did it and then HMRC came along a year or two later and said that it was not OK. The money would be in your pension by that stage ! I presume you'd get a late Corp Tax bill ? Would it be a fine job ?

My plan this year is 12K salary ( ie. some PAYE and NI paid), one reasonable divi ( ie. some Corp Tax ) and then the rest into a SIPP. The theory is getting either down to zero might put you on the HMRC radar.

[An old-timer]

Within the next 10 years I plan 2 or 3 years work where I put 100% of my Co turnover, minus expenses into the SIPP.

Interesting, that's basically what I'd like to do, have you had professional advice that putting 100% in is acceptable to HMRC? I'd like to read that BMI if I could find it....

[Fred Bloggs]

Yes, this is why I was interested in the reference to BIM446001, as it was claimed in an earlier post to clarify HMRC's position. I have taken a cautious stance and kept my company (i.e. employer) contributions to less than my salary, but it would be good to know that HMRC would not view an above-salary payment as suspect. Trying to get a definite answer on any of these issues always seems to be a struggle

I'm also in my 50's and I am increasing my company contributions to my SIPP whenever I can. Presently it is £1k per month but within the next 6 years or so it will be ramped up to £2k a month. Within the next 10 years I plan 2 or 3 years work where I put 100% of my Co turnover, minus expenses into the SIPP. By then, I will be able to live off the 25% tax free capital for those final 3 years of work. That's my plan and it seems sound as far as I can tell. Being able to do this I what I see as one of the biggest benefits of being as contractor to be honest.

[Hex]

How are personal contributions made from dividend income treated?

I don't believe you can make personal contributions from dividend income. I think you are limited to personal contributions being a maximum of 100% of salary or £3,600 whichever is the greater. But I may be out of date here.

Check with an accountant or IFA in case I'm wrong.

This link says you are limited to 100% of earnings and I presume this means earned income which includes salary but NOT dividends.

http://www.pensionsadvisoryservice.o.../contributions

[rootsnall]

I was asking about the position of a director who had already paid substantial divis and wished to use the funds to contribute to pension. I understand the post I quoted.

Dunno ! I don't think it would make sense tax wise. Can you not unwind the divi's and pay the money back into your Ltd as though it had been a loan and then make the pension contibution as an employer contribution. One for your accountant.

[Peoplesoft bloke]

The previous poster was pointing out the difference between employee and employer contributions.

You wouldn't pay 'personal contributions made from dividend income'. You would pay employer contributions direct from the Ltd into your own personal pension ie. NI and tax free.

It now seems to be generally accepted ( but never 100% sure ) that you can pay a low salary and high employer contributions into your pension. In theory you could pay everything you earn into your pension and thus pay no tax or NI, but I suspect that would be asking for it !?!

I was asking about the position of a director who had already paid substantial divis and wished to use the funds to contribute to pension. I understand the post I quoted.

[rootsnall]

Yes, this is why I was interested in the reference to BIM446001, as it was claimed in an earlier post to clarify HMRC's position. I have taken a cautious stance and kept my company (i.e. employer) contributions to less than my salary, but it would be good to know that HMRC would not view an above-salary payment as suspect. Trying to get a definite answer on any of these issues always seems to be a struggle

Impossible

I broke the rule for the first time last year, but didn't go mad.

[An old-timer]

It now seems to be generally accepted ( but never 100% sure ) that you can pay a low salary and high employer contributions into your pension. In theory you could pay everything you earn into your pension and thus pay no tax or NI, but I suspect that would be asking for it !?!

Yes, this is why I was interested in the reference to BIM446001, as it was claimed in an earlier post to clarify HMRC's position. I have taken a cautious stance and kept my company (i.e. employer) contributions to less than my salary, but it would be good to know that HMRC would not view an above-salary payment as suspect. Trying to get a definite answer on any of these issues always seems to be a struggle