I'm transferring £160k to my pension this year!

[helloyou]

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]

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]

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]

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]

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]

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]

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 don’t exceed the company’s 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]

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 don’t exceed the company’s 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!

[akw]

Hi all,
we (2 directors) want to do a similar transaction this year.
On the link quoted earlier in this thread
https://www.drewberryinsurance.co.uk/pensions-advice/company-directors-pension-contributions#CorporationTaxRelief4
is says:
The cap of 100% of earnings doesn’t apply to company contributions, so your company can contribute up to the full £40,000 regardless of your earnings.
Is it correct that we could use all of the projected trading profits (based on previous year's performance), to make contributions to our workplace pensions, even though our salaries were very small?
It says that the contributions will not incur employer NI, (still have spare allowance, anyway). But will employee NI will be payable, as these are benefits in kind?
If our company also made investments/improvements and the Capital Allowance result in a loss, can we ofset against last year's profits and get a tax refund?

[PhilB]

Hi all,
we (2 directors) want to do a similar transaction this year.
On the link quoted earlier in this thread
https://www.drewberryinsurance.co.uk/pensions-advice/company-directors-pension-contributions#CorporationTaxRelief4
is says:
The cap of 100% of earnings doesn’t apply to company contributions, so your company can contribute up to the full £40,000 regardless of your earnings.
Is it correct that we could use all of the projected trading profits (based on previous year's performance), to make contributions to our workplace pensions, even though our salaries were very small?

Correct.  Your salaries are irrelevant for this one.

It says that the contributions will not incur employer NI, (still have spare allowance, anyway). But will employee NI will be payable, as these are benefits in kind?

There is no NI to pay on employer pension contributions so you are fine here.

If our company also made investments/improvements and the Capital Allowance result in a loss, can we ofset against last year's profits and get a tax refund?

For that one I think you probably need to talk to a proper accountant!

[akw]

thanks for your reply, that was very useful.

We have an accountant, but he never pointed out how we could make any tax savings. I think the reason is that our potential tax savings are not great enough for tax advice to be beneficial, in other words there is not enough in it for him. How much does tax advice cost? 5K? 10K? I just had the scenario where I ask some advice re IHT, told me that IHT will be due (I know, that is why I asked for advise!) copy & pasted stuff that you can read up on the gov website, told me to see a financial adviser, and sent me a huge bill. I can't ask him anything.

Perhaps there is a blog about Capital Allowance and Research & Development which will help us make the right decision.

[UK Dancer]

Hi akw,

I actually am an accountant (albeit tax is not my specialty) but I can tell you that you want this gov.uk guidance page: https://www.gov.uk/guidance/corporation-tax-calculating-and-claiming-a-loss#how-to-claim-for-a-trading-loss-to-be-carried-back-or-amend-a-claim

If your capital allowances weren't related to the sale/disposal of assets, then you should be able to include them in the calculation of your bottom line profit and carry it back.

[PhilB]

Thanks UK Dancer.  It's 27 years since my chartered accountacy exams so I really didn't feel confident expressing an opinion on capital allowances and loss carry backs!

[akw]

Thanks UK dancer.
With regards to investing 160k into a pension, I understand that unlike the compny contributions, which are capped by the compniy's trading profits and have timing constraints, the limit of personal contributions claimed against income tax are 40K per year with a carry back of 3 years.
The plan is to invest 300k into two SIPPs and then transfer privately owned commercial property into it. The tax savings from pension contributions will be wiped out by CG from the transfer. And then there are the fees: 0.9 to 1.7% was the quote from the FA.
Can anyone help me do the maths? does it still make sense to do that?