Reply to: Saving/Retirement etc

[escapeUK]

To save you looking for THEPUMA posts here is one. You might also like to review the whole thread it's in.

http://forums.contractoruk.com/accou...ml#post1192134

I tried to contact him for more details and never got a reply

[IR35 Avoider]

Money used to pay off mortgage comes from divis that have been taxed at 20% whereas money going into SIPP is tax free (saving the 20%)?

Assuming money going into the SIPP is taxed at basic rate when it comes out, it will be taxed at 15% on average. (A quarter tax-free and the rest taxed at 20%.)

[IR35 Avoider]

1. If I pay into a SIPP personally, the max I can put in each year = the salary I pay myself? If company does it the max is £50K? (and I can use previous 3 years allowances too).

You can personally put in about 3.6K even if you have no salary, above that you are limited by salary and the 50K limit. From the company, only the 50K limit applies.
Contribution Levels and Tax Relief - The Pensions Advisory Service (TPAS)

2. If I transfer in some existing frozen pensions, does this count towards the £50K year max?

No. A transfer is not a contribution. Limits only apply to contributions.

3. Am I right in saying that you can start taking money out of SIPP as soon as you reach 55? Regardless of your work circumstances?

Yes

[northernladuk]

Fair enough. Those threads won't google themselves.

Yes bwana, i will get right on it bwana, no problems bwana......

[Old Greg]

What? and not be around to offer constructive and polite advice in the helpful tone I am famous for to our new posters (and a few of the older ones!)?? You have got be 'avin a larf!!!

Fair enough. Those threads won't google themselves.

[northernladuk]

Maybe he could do your googling of other posters' questions, and then you could do your own lawn.

What? and not be around to offer constructive and polite advice in the helpful tone I am famous for to our new posters (and a few of the older ones!)?? You have got be 'avin a larf!!!

[Old Greg]

If you are a bit short of work ASB you can come round and do my lawn!!

Maybe he could do your googling of other posters' questions, and then you could do your own lawn.

[ASB]

Everyone on here always bangs on about the difference between company money and personal money. This would just be an attempt to combine the two and get an advantage out of it.

That is a view you could take.

There is, I believe, absolutely nothing in law which states that company assets need to be held in the name of the company. There are, however, some accounting issues related to how they are shown on the balance sheet. A simple example of this might be a company car. Quite a lot of these are registered in the name of the keeper rather than the company.

Consider, for example, somebody with bad credit and is refused a company bank account. Does this mean they can't trade ? Of course not. They could quite happily use a new personal bank account for the company. It would be best obviously to keep it entirely separate in an account of it's own. They can account for any interest received to the company.

I fully see your point about "combining the two". But there is no point at which I have suggested that. In a separate account it is not combined. It is always available to the company. It is obviously identifiable. It has not been lent.

The individual does not receive any consideration - this would certainly be a benefit if it was not accounted for back to the company. The individual happens to receive an indirect benefit that is all. I do not believe there is any mechanism to tax that.

Clearly this is not something for the risk averse, after all if you don't try it it can't go wrong. Personally I am not particularly risk averse and if it was appropriate for me I would do it. I accept it may lead to a long and interesting chat with the inspector. But I've had loads of them. Some of these haven't turned out as well as I'd hoped - I think my company tractor and lawn tractor probably fell into the piss take category but all it cost me was tax on 10% of the depreciating value for assets placed at my disposal.

[ASB]

You are getting there



No one has ever done it, it has just been proposed by THEPUMA so not tested. Like any scheme like this HMRC will probably take a dim opinion and try and fight it and lose. You are guessing about the BIK now.

It has been done. It has not been challenged (obviously different from being accepted).

[northernladuk]

Everyone on here always bangs on about the difference between company money and personal money. This would just be an attempt to combine the two and get an advantage out of it.

Putting it in to trust is a whole different ball game. I don't profess to know anything about trush but it puts a legal wrapper around it which changes it's status hence being able to do this. Again... No one has done it so we don't know the details OR the implemenation. It would be just (more) hypotheical discussion.

[psychocandy]

You are getting there



No one has ever done it, it has just been proposed by THEPUMA so not tested. Like any scheme like this HMRC will probably take a dim opinion and try and fight it and lose. You are guessing about the BIK now.

Everyone on here always bangs on about the difference between company money and personal money. This would just be an attempt to combine the two and get an advantage out of it.

[northernladuk]

OK. Fair enough. So basically the companies money is held in trust offsetting a personal mortgage?

You are getting there

Hmmm. Didnt know you could do this? Surely its a BIK for the person?

No one has ever done it, it has just been proposed by THEPUMA so not tested. Like any scheme like this HMRC will probably take a dim opinion and try and fight it and lose. You are guessing about the BIK now.

[psychocandy]

Yes you are right. I had forgotten that the 40% band is limited now.



No you're not. That's the whole point. Offset mortgage x, cash in an offset account x, net interest payable = zero. So in example 2 the mortgage is still paid off after 7 years. The total paid to the mortgage is the same (140k). The difference is that the individual hasn't had to pay any 40% (or greater) tax along the way.



Yes, keep the company money in an account which is offset against the mortgage. The mortgage payments are made by the recipient of the dividend.



If it were a directors loan then there would be BIK Based on nominal interest (unless adequate interest were paid). There would also be S419 tax involved. Even so it is possible that could still be cost effective but there is no way I'm going to bother working out those numbers.

This sub-discussion in fact started from my earlier comment to css_jay of:-

"One mortgage idea is to place the company funds on deposit (in trust for the company) into an account which is offset against the mortgage. You don't pay mortgage interest, also there is no benefit from the money to you (because it's offset) and thus no BIK.

THEPUMA has posted on this before, opinion is divided about whether it will be effective though he does know what he is talking about. It would require a properly drafted and stamped trust deed."

The point being that if the money is in trust for the company, on deposit in a separate account - albeit in the directors name - then it is NOT a loan to the director. Thus no BIK consequences. The fact that it is offsetting the directors mortgage is purely incidental. It is also visibly repayable in an instance should it be required, this does perhaps slightly strengthen the non loan argument.

There could be any number of reasons why this was done. The improved compensation scheme for private over corporate depositors is one that springs to mind. Especially in these troubled times. Ok, so the company may be foregoing 0.01% interest or something but that is perhaps a fair price to pay for the additional security.

As I said originally the accounting profession is divided on the efficacy of this. There is plenty of comment both for and against. It is certainly aggressive though.

I'm not going to argue about whether it does or doesn't work. My example was simply based on the premise that it does work and to demonstrate that there can potentially be a better alternative to paying down debt now; it can be more effective to pay it over time.

To save you looking for THEPUMA posts here is one. You might also like to review the whole thread it's in.

http://forums.contractoruk.com/accou...ml#post1192134

OK. Fair enough. So basically the companies money is held in trust offsetting a personal mortgage?

Hmmm. Didnt know you could do this? Surely its a BIK for the person?

[psychocandy]

Do you have 200k in your company and are looking at this as a viable solution or just looking out of interest? I thought you had only just come back to contracting.

No. The 200K was something ASB brought up in his example.

All company money for me this year is likely to be doled out in dividends between myself and wife and possibly wont exceed upper rate.

[ASB]

Couple of things.

1) In example 1, it'd cost you a shedload more than 25% in tax if you declared a 200K dividend.

Yes you are right. I had forgotten that the 40% band is limited now.

2) In example 1, mortgage is paid off, gone, no more interest charged, no more monthly payments. In example 2, you've still paying interest on the outstanding balance and still have to make monthly payments to mortgage. Admittedly, it goes down over the 7 years. Dont understand this annulling interest thing? It might cover the interest payments but its still charged whereas in (1) its not.

No you're not. That's the whole point. Offset mortgage x, cash in an offset account x, net interest payable = zero. So in example 2 the mortgage is still paid off after 7 years. The total paid to the mortgage is the same (140k). The difference is that the individual hasn't had to pay any 40% (or greater) tax along the way.

Or are you talking about moving the whole amount into mortgage offset account somehow to totally negate the balance? And, 'leave' £23K each year.

Yes, keep the company money in an account which is offset against the mortgage. The mortgage payments are made by the recipient of the dividend.

Surely this is, in effect, taking a £200K Directors Loan and, as such, a huge BIK?

Not sure what the rate your company needs to charge you to make it a non-BIK loan? Can you do this?

If it were a directors loan then there would be BIK Based on nominal interest (unless adequate interest were paid). There would also be S419 tax involved. Even so it is possible that could still be cost effective but there is no way I'm going to bother working out those numbers.

This sub-discussion in fact started from my earlier comment to css_jay of:-

"One mortgage idea is to place the company funds on deposit (in trust for the company) into an account which is offset against the mortgage. You don't pay mortgage interest, also there is no benefit from the money to you (because it's offset) and thus no BIK.

THEPUMA has posted on this before, opinion is divided about whether it will be effective though he does know what he is talking about. It would require a properly drafted and stamped trust deed."

The point being that if the money is in trust for the company, on deposit in a separate account - albeit in the directors name - then it is NOT a loan to the director. Thus no BIK consequences. The fact that it is offsetting the directors mortgage is purely incidental. It is also visibly repayable in an instance should it be required, this does perhaps slightly strengthen the non loan argument.

There could be any number of reasons why this was done. The improved compensation scheme for private over corporate depositors is one that springs to mind. Especially in these troubled times. Ok, so the company may be foregoing 0.01% interest or something but that is perhaps a fair price to pay for the additional security.

As I said originally the accounting profession is divided on the efficacy of this. There is plenty of comment both for and against. It is certainly aggressive though.

I'm not going to argue about whether it does or doesn't work. My example was simply based on the premise that it does work and to demonstrate that there can potentially be a better alternative to paying down debt now; it can be more effective to pay it over time.

To save you looking for THEPUMA posts here is one. You might also like to review the whole thread it's in.

http://forums.contractoruk.com/accou...ml#post1192134