Reply to: Company retained profit in the long term

[Fred Bloggs]

Thanks guys. Let me read up more about pensions.

In the meantime, does anyone have any idea about point 2 i.e. what happens if we shift abroad before retirement? Do we still get the UK pension?

If you move abroad the pension will stay invested here in the UK. If you retire abroad you can still take a pension from your fund. There are ways to transfer pension funds to pension plans abroad but this is a specialist field where an adviser is required since there are pitfalls awaiting the unwary.

[SimonMac]

Thanks guys. Let me read up more about pensions.

In the meantime, does anyone have any idea about point 2 i.e. what happens if we shift abroad before retirement? Do we still get the UK pension?

Pensions are simple:

The money goes in tax free, but comes out taxed.

ISA's are the way round, you have already paid the tax on the money going in, so the money out is tax free

[Fred Bloggs]

I think it's worth saying that regarding the many questions about how pensions work, places like Hargreaves Lansdown and others similar, have easy to understand guides freely downloadable that answer all the questions that have been asked here about how pensions work. I'm a huge fan of investing in SIPPs and I am maxing out my Ltd Co contributions to my SIPP at HL.

[JoJoGabor]

You will only pay 40% income tax when you are retired if you take over the 40% threshold. Hopefully without a mortgage, a dual income of approx £80k will suffice for a couple of old codgers. There's only so many cruises and sweets for the grandkids you can buy. Then it will be more like 20% tax

[Contreras]

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

Bargain!

... and then on retirement, for each £100 drawn as pension, you receive £60. The tax man keeps the rest!

Bummer!

[SueEllen]

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,

You need the money when you are old. The majority of the people alive now and who post on this will live into their 80s.

You don't put all your spare money into the pension but some of it - spreading your risk.

(2) the complexity of international rules in case we shift outside UK in a few years and

If you move outside the UK your pension doesn't suddenly disappear the investments should (if you have chosen correctly) continue to grow even though you can't put money into it. Then once you reach retirement age you can draw on the pension.

(3) the potential of losing your contributions in case you don't live long enough.

NLUK has answered that for you.

[Pegasus]

Thanks guys. Let me read up more about pensions.

In the meantime, does anyone have any idea about point 2 i.e. what happens if we shift abroad before retirement? Do we still get the UK pension?

[DirtyDog]

Thanks NorthernLadUK.

Yes, thats in-line with what I thought, and thats the reason why the cash has been accumulating in the limited company account (have few savings accounts paying 1-2%, but its all too low anyways).

Am in the early 30s so pension does not appeal much to me at this stage. But will try to look at it in the coming days.

Based on my current limited knowledge about pensions, I think you can't take out any money till around 55, and at that stage also, you can only take 25% as a lump sum, and rest will have to be an annuity?
In that case, won't we lose the bet big time if we die shortly after 55?

Another reason why I haven't looked at pensions is that I am not sure whether I will retire in UK or not, and don't know about the rules regarding international transfers of pension contributions. If I shift out of UK permanently when I am around 40-45, will I still be able to access my UK pension when I retire (given that I have British passport/citizenship)?

Many thanks.

I used to think much the same (apart from not being early 30s). Then I spoke to someone who knew about investments etc.

I pay in £2k a month at the moment, but it's flexible so I can stop or start whenever I need to.

[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.

[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

[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?

[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.

[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.

[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.

[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!