Use assets as "pension"?

**moorfield** · 16 June 2008, 20:34

Have a search around you'll see this has been discussed a lot already.

If you're planning a pension best route is to take employer contributions from yourco into a SIPP, this has some advantages over keeping it in yourco

- pension contributions reduces yourco corp tax
- better choice of and cheaper funds, shares etc. via a SIPP
- 25% can be withdrawn tax free at 55
- not obliged to buy an annuity so the remainder can be left for even older age or drawn out gradually at basic rate tax

**contractor79** · 16 June 2008, 22:42

but isn't it true that you can't withdraw your pension until age 55. Isn't the opening poster thinking perhaps of retiring at 50 and living off the funds in his company account from say age 50? If he had £150k there at age 50 he could live on £30k/year until age 55 when he takes his pension. Seems a good idea to me but I'm no expert.

**Olly** · 17 June 2008, 08:21

Originally posted by moorfield View Post

Have a search around you'll see this has been discussed a lot already.

If you're planning a pension best route is to take employer contributions from yourco into a SIPP, this has some advantages over keeping it in yourco

- pension contributions reduces yourco corp tax
- better choice of and cheaper funds, shares etc. via a SIPP
- 25% can be withdrawn tax free at 55
- not obliged to buy an annuity so the remainder can be left for even older age or drawn out gradually at basic rate tax

Did have bit of a search, I'll look again after work.
In the meantime a few quickies:
a) Is a pension contribution and expense and therfore no corp tax on it (i.e. immediately 21% (is it that now) better off?

b) I'm ideally trying to avoid buying an annuity so if I draw out rest taxed at basic rate then I loose the 21% just gained above?

If answer to a) and b) are yes then 25% of pension saved is still nothing to scoff at..hmmm!!

**IR35 Avoider** · 17 June 2008, 08:58

For new money coming in that is potentially subject to IR35 then I reckon employer pension contributions are the best route. "Potentially subject to IR35" includes money you think isn't caught, but the tax-man might decide to argue otherwise.

For other money, retained earnings or new earnings that you are near 100% convinced aren't IR35-caught, the slightly lower tax bill you would get from cycling it through a pension isn't worth the loss of access and control, for most people. Investing within the company is more difficult and less tax-efficient than the alternatives, nevertheless that is the thing to do with this money, but extract it out of the company as dividends as soon as you can do so without paying higher-rate tax.

If you are earning potentially IR35-caught money, immunise that income from IR35 by putting nearly all of it in a pension as employer contributions and extract your retained earnings to give yourself money to live on. That way you can empty the company quickly.

Some of the pension money, let's say three-quarters, though the actual figure depends on individual circumstances, does eventually go into an annuity. Though many people don't like that, I don't see it as a bad thing, provided you take care to get the most competitive deal on the annuity. An annuity is just a clever device for spreading a lump-sum into an even income that spans all possible future life-spans.

**IR35 Avoider** · 17 June 2008, 09:05

Originally posted by Olly View Post

a) Is a pension contribution and expense and therfore no corp tax on it (i.e. immediately 21% (is it that now) better off?

Yes

b) I'm ideally trying to avoid buying an annuity so if I draw out rest taxed at basic rate then I loose the 21% just gained above?

Money drawn as dividends and taxed at the basic rate will effectively have been taxed at the Corporation tax rate, 21%.

For pension, to put it crudely, you pay no tax now but pay tax when you get it probably at basic rate (20%) on three quarters of it and nothing on a quarter taken as tax-free lump sum, so it is taxed at an average rate of 15%. Maybe even less than that - if when you draw it you have any unused personal allowance, that will reduce the effective rate below 15%. (Note that pensioners get increased personal allowances, higher than the level of the basic state pension.)

However the big advantage of pension contributions is that you are guaranteed to avoid employers and employees NI on it. This is only an issue if the earnings in question would otherwise have become salary rather than dividends. Such treatment could be a consequence of an IR35 investigation. Salary income, the last time I calucated it, is effectively taxed at 39% in the basic rate band and over 47% in the higher rate band, once you take all NI into account.

**Billy Pilgrim** · 17 June 2008, 09:15

Different twist on things then...

How's about throwing it in a pension...sodding off to somewhere nice and hot in a few yrs time, transferring the pension to an offshore (QROPS) type thing.....waiting 5 yrs.....????

**IR35 Avoider** · 17 June 2008, 09:25

Originally posted by Billy Pilgrim View Post

Different twist on things then...

How's about throwing it in a pension...sodding off to somewhere nice and hot in a few yrs time, transferring the pension to an offshore (QROPS) type thing.....waiting 5 yrs.....????

Something I've read about recently, but know nothing about. For me it makes sense to make maximum use of pension, even without this possibility. Since this option doesn't affect the decisions I need to make now, I will investigate it nearer the time. (I'm not going to change the country I live in, even for just five years, just to get my tax bill down from 15% to zero. If I can get this as an incidental benefit of funding my pension, that will just be a bonus.)

Having said that, for people who (unlike me) are in a position to have a firm idea of where they want to live long-term when they stop working, this might give them an extra incentive now. My wife and I have completely different ideas of what countries we might like to live in, and she can't forsee a time when she will no longer want to earn in London, so I'm guessing I'll be here indefinitely.

**Billy Pilgrim** · 17 June 2008, 09:45

Originally posted by IR35 Avoider View Post

For new money coming in that is potentially subject to IR35 then I reckon employer pension contributions are the best route. "Potentially subject to IR35" includes money you think isn't caught, but the tax-man might decide to argue otherwise.

Which is my thinking too...!!!

Mind you, was having a quiet moment yesterday thinking about this actually works in practice

Example 1 ... Company Pension Contributions

Salary 10K
Company Pension Contribution 20K

..leaves (very) approx 30K to distribute using divis before higher rate tax is hit

Example 2 ... Company Pension Contributions

Salary 30K (Personal Pension Contribution 20K)

..leaves (very) approx 10K to distribute using divis before higher rate tax is hit...

Or have I missed something VERY basic

**Olly** · 17 June 2008, 09:53

I can see my company taking less than 40K a year every now and then.
At least I hope I'll have the bottle to take some decent time off so during those times I can "use up" some of the retained company assets.

Since IR35 is "gig related" then it's only a matter of pensioning the relevant income. The paper contracts I've signed in the past are IR35 friendly although may way of working - as for most IT contractors - is more unfriendly!

Hmmm...only thing is - if I get mega rich then I'll never be able to take the company assets in a more tax efficient way than a pension...won't I?

Use assets as "pension"?