SIPP most efficient Funding SIPP most efficient Funding
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  1. #1

    Nervous Newbie


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    Aug 2020
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    Default SIPP most efficient Funding

    SIPP Contribution question.

    Hi,

    I am thinking of opening a SIPP and I have a question about the most tax efficient way of funding it.
    I would want to make regular, say monthly contributions.

    Here is my situation:
    1- I am the director of my UK Ltd company but do not draw any salary or dividends from it.
    2- I am as well self employed with income that puts me squarely in the 40% tax bracket

    My self-employment income affords me and my family a comfortable lifestyle and I could contribute to a SIPP, but it won’t be much, and I would like to do more but in the most tax efficient way.
    I thought of 2 ways of going about this:

    1- My Ltd company could contribute to my personal SIPP (as an employer). It would have enough money to do so. Let’s say for example, 10 K/year.
    The Ltd. would not pay the corp. tax on those 10 K.

    2- I thought what if the Ltd. company pays me the 10 K as a salary. It would not affect my tax bracket as I am already above the 40% threshold.
    The Ltd would not pay tax as it’s a 10 K salary, probably a bit of NIC…
    Now personally I would take the 10 K and contribute them to my SIPP. Would I be eligible for the extra tax relief since I am in the 40% bracket? In which case that is much more beneficial in terms of tax efficiency.

    Just to clarify, my aim here would be to fund the SIPP and in the same time draw money from the company without me needing the proceeds to live off and get a 40% boost to my SIPP from day one…
    would the second way be more tax beneficial to me or am I missing something?

    Thank you in advance for your help.

    Roger

  2. #2

    Default

    I see where you are coming from with this but without real numbers and without fully understanding your lifestyle and other financial commitments, family, spouse situation, I think it's likely impossible to say here with any certainty. The only thing I would say would be if you can live on income below the 40% tax bracket then it seems to make sense to contribute enough to the SIPP to drop you back into the standard rate tax bracket. I don't think anyone else can say more than that meaningfully to be honest. Maybe someone else will have a go. But I think there's way too many unknowns here. HTH.
    Public Service Posting by the BBC - Bloggs Bulls**t Corp.
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  3. #3

    Should post faster


    Join Date
    Jun 2006
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    Aberdeen
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    Default Employer vs Personal SIPP Contribution

    For 2020/21 the annual limit is 100% of your salary or £40,000 (whichever is lower). This includes both contributions paid by you and contributions paid by your employer


    If I understand your question correctly, you have to consider the following :

    - Employer contribution up to maximum of 40K per year, saving on corporation tax of 19%

    - Personal contribution up to 100% of Salary with a cap of 40K. Pension tax relief will depend on your earnings. See Link.

    Tax on your private pension contributions: Annual allowance - GOV.UK

  4. #4

    Nervous Newbie


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    Quote Originally Posted by Fred Bloggs View Post
    I see where you are coming from with this but without real numbers and without fully understanding your lifestyle and other financial commitments, family, spouse situation, I think it's likely impossible to say here with any certainty. The only thing I would say would be if you can live on income below the 40% tax bracket then it seems to make sense to contribute enough to the SIPP to drop you back into the standard rate tax bracket. I don't think anyone else can say more than that meaningfully to be honest. Maybe someone else will have a go. But I think there's way too many unknowns here. HTH.
    thank you for your reply.
    I see what you mean. I am aware that something like that should be worked out with details in mind.
    much appreciated,

    Roger

  5. #5

    Nervous Newbie


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    Default

    Quote Originally Posted by eazy View Post
    For 2020/21 the annual limit is 100% of your salary or £40,000 (whichever is lower). This includes both contributions paid by you and contributions paid by your employer


    If I understand your question correctly, you have to consider the following :

    - Employer contribution up to maximum of 40K per year, saving on corporation tax of 19%

    - Personal contribution up to 100% of Salary with a cap of 40K. Pension tax relief will depend on your earnings. See Link.

    Tax on your private pension contributions: Annual allowance - GOV.UK
    thank you for your reply. definitely a lot to think about and consider...

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