Nervous Newbie
private pension converting to contractor
Hi newbie question.
I've an existing private pension with LV that I pay into. LV reclaims basic rate tax on my contributions.
Now I'm a contractor do I need to tell LV to stop reclaiming tax?
I know there are lots of great rules ( and forum threads!) around using pension contributions to reduce corp tax liability, but I want to get my existing pension straight first.
Many thanks.
Mark
TPAFKAk2p2
If you're paying in personally, then they reclaim tax. If you're making company contributions, then you need to make sure they know that and don't reclaim tax on them.Originally Posted by markm
Should post faster
With your existing LV pension, if you are going to make the payments from your company to this fund, you will need to advise them these are employer contributions.
This will provide the company with corporation tax relief on the payments.
If you continue or make addition personal contributions into the pension, again let LV know so they can reclaim the tax relief for you personally.
You will need to bear in mind of the pension contribution limit (both personal and employer) contributions. Currently £40K. But if you speak with an IFA they can review your current pension and advise if you can use any allowances from prior years to also top up your pension.
Contractor Among Contractors
You can carry on paying in personally and LV will reclaim the tax as normal _but_ only up to to 100% of salary.
Presumably you are contracting through your own Ltd. Your company can pay directly into the pension out of pre-tax profit and this would reduce the corp tax accordingly. If you do this then be sure to inform LV so that they don't reclaim the tax as well! The limit is max £40k total including personal contributions.
Important factors are current salary/dividend split, and whether you have received any PAYE income from previous employment or made any contributions this tax year.
Would be a good idea to check with your accountant to get the answer suited for your circumstances.
Nervous Newbie
Wow, many thanks for the replies. I had the same question to both LV, my IFA and accountant, three days later still nothing.
I guess this is another dumb question and possibly sliding off topic.
Initially I thought contributions going forward will be from my salary (Ltd company, minimal 10k pa), and not exceeding 100% of salary. Since I am below my personal allowance, and paying no income tax, can LV still claim basic relief ( pardon the incorrect terminology). Free money from hmrc? Too good to be true me thinks, never the less.
Or am I better off getting the company to pay directly my pension, and taking the corporation tax advantages outlined. A question I shall also ask my accountant, but good to know the opions here.
Regards
M
Contractor Among Contractors
You can do either. I believe there is may be a marginal benefit to making personal contributions up to the salary limit vs. company contributions if you are a high rate tax payer, otherwise it doesn't make a difference. Get an accountant to check though and if yours can't give a satisfactory answer then maybe look for a new one?
Remember as well that a pension is effectively tax deferred. That is, pension is taxed as income when withdrawing it. Conventional wisdom is that it's only 'tax efficient' if you can save high rate tax on the way in and then pay basic rate tax on the way out. Although recently the rules have been relaxed on the tax free element.
Personally I wouldn't be making any contributions until the personal ISA allowance (now £15k p.a.) is used up (invested in tracker funds/ETFs) - I think you'd struggle to find an IFA to recommend that though.
Nervous Newbie
Many thanks for the replies. I'm better armed for the talks with the professionals. I must ask some more questions, but need to search the archives first.
Regards Mark
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