Author Topic: I'm transferring £160k to my pension this year!  (Read 365 times)

helloyou

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I'm transferring £160k to my pension this year!
« on: October 17, 2020, 05:28:53 PM »
Hello,

Some of you may have read my latest thread about combining current portfolio with pension to retire early (https://forum.mrmoneymustache.com/uk-tax-discussion/retire-at-35-with-500k-and-monthly-spending-of-2k/).

I'm about 20 years away from having access to my pension, but I have about £400k available in my normal (non retirement) portfolio. It should be enough to live on about £1700k/month assuming no compounding until I reach my pension age. But most likely I should be able to dip in up to £2k/month without fear of being out of pocket until my pension becomes available.

And now I'm liquidating my LTD, and I'm dropping 2 tax year of earning into my 4 years of un-used pension allowance! So a total of £40k * 4 = £160k. I won't pay any tax on my previous freelance contracts, that is boosting my pension fund by £30k (saving on 19% corporation tax)


I was lucky because I remembered that 10 years ago I contributed to a workplace pension, and I spent a few weeks poking people and ex-colleagues to get that information!


So everyone should open a pension as soon as possible, even without putting money on it. So that when you have enough money to live without working until 57, you can just put everything into the pension and FIRE AWAY!!

vand

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Re: I'm transferring £160k to my pension this year!
« Reply #1 on: October 18, 2020, 07:37:35 AM »
Are you aware that you can't deposit more than your total income in a given yyear? And you must have been a member of the pension scheme for the number of years of backfilling that you are hoping to contribute, so you can't just open a SIPP and dump it in.

The rules exist to stop people doing... exactly what you're wanting to do.

helloyou

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Re: I'm transferring £160k to my pension this year!
« Reply #2 on: October 18, 2020, 11:08:41 AM »
Are you aware that you can't deposit more than your total income in a given yyear? And you must have been a member of the pension scheme for the number of years of backfilling that you are hoping to contribute, so you can't just open a SIPP and dump it in.

The rules exist to stop people doing... exactly what you're wanting to do.

Yes I'm aware.

I'm transfering profit from my LTD across 2 fiscal year. So that allows me to top it to the max from profit.

Because its directly transferred from a company, the total personal income is irrevant in this case. It just has to come from company profit.

And yes, I luckily opened a workplace pension about 10 years ago with scottish widdow which is still available today... I forgot about it but now its very convenient! 😎

Borgo Panigale

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Re: I'm transferring £160k to my pension this year!
« Reply #3 on: October 18, 2020, 03:18:35 PM »
Even as a company director, your earnings over the period do apply.  The maximum annual allowance is £40k or 100% of earnings, whichever is lower.  Profits retained in the company are irrelevant.
As long as you took out at least £40k each year, you'll be fine.

helloyou

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Re: I'm transferring £160k to my pension this year!
« Reply #4 on: October 18, 2020, 03:38:20 PM »
Even as a company director, your earnings over the period do apply.  The maximum annual allowance is £40k or 100% of earnings, whichever is lower.  Profits retained in the company are irrelevant.
As long as you took out at least £40k each year, you'll be fine.

Do you mean company earnings? If so, yes it was way above it. I pay over 2 company fiscal year to fill it up to £160k

PhilB

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Re: I'm transferring £160k to my pension this year!
« Reply #5 on: October 20, 2020, 03:27:06 PM »
Even as a company director, your earnings over the period do apply.  The maximum annual allowance is £40k or 100% of earnings, whichever is lower.  Profits retained in the company are irrelevant.
As long as you took out at least £40k each year, you'll be fine.

The 100% of earnings rule is for EMPLOYEE contributions.  These will be Employer contributions.

vand

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Re: I'm transferring £160k to my pension this year!
« Reply #6 on: October 21, 2020, 01:00:03 AM »
I might be wrong, but isn't there a rule that a company cannot put more money into a pension that it makes in a year?

https://www.drewberryinsurance.co.uk/pensions-advice/company-directors-pension-contributions


Other factors HMRC will examine before allowing pension contributions via your limited company include:

Checking that pension contributions donít exceed the companyís annual profits. So, if your company turns a profit of £20,000 in a tax year, £20,000 will likely be the maximum the company can contribute to your pension that year.

helloyou

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Re: I'm transferring £160k to my pension this year!
« Reply #7 on: October 21, 2020, 01:59:44 AM »
I might be wrong, but isn't there a rule that a company cannot put more money into a pension that it makes in a year?

https://www.drewberryinsurance.co.uk/pensions-advice/company-directors-pension-contributions


Other factors HMRC will examine before allowing pension contributions via your limited company include:

Checking that pension contributions donít exceed the companyís annual profits. So, if your company turns a profit of £20,000 in a tax year, £20,000 will likely be the maximum the company can contribute to your pension that year.


Yes, although it's not specifically mentioned anywhere in HMRC that pension contribution shouldn't be higher than company profit, I've just transferred enough to still pay £100 in corporation tax.

Bear in mind that company fiscal year is different to personal fiscal year.

So for the personal year April 2020-21, I have £160k of allowance available:
My LTD pays all income of company fiscal year Jul 2019-20 = £80k by June 2020.
Then pays another £80k on the next fiscal year Jul 2020-21. So the timeslot for payment is from Jul 2021 to April 2021 to fill it up to £160k!
« Last Edit: October 21, 2020, 02:01:15 AM by helloyou »