Putting all your earnings into a pension

[ChimpMaster]

Imagine you had paid off your mortgage, had some savings and some other form of income (such as wife working). Could you choose to put a very large % of your contracting income into a pension (something like 80%), and then have that pension start early enough (say when you're 45 for example)?

Would this be an effective way to minimise your tax burden?

[KackAttack]

It's a slightly grey area, for employees they are able to Salary Sacrifice up to 100% of earnings, for directors I believe you can still contribute these kinds of amounts - although you would not be able to get your hands on the pension until 55.

[Solidec]

Thought there was a rule governing maximum of 100% earnings into pension.

IE you earn 70,000 in a tax year, max you can put into a pension is 70,000

[Dave Spring]

YourCo can contribute direct to your (employee) pension fund without anyone paying tax on this. the only limit is HMRC limits (up to 213k ish or x times salary of employee - you would need to check).

I'm planning to up my contributions significantly as my wife gets back to work after looking after the kids, but as someone else has said - cannot start claiming pension until 55 - oh well 15 years of slog to go!!

Now where's that lottery ticket!

[DonkeyRhubarb]

Imagine you had paid off your mortgage, had some savings and some other form of income (such as wife working). Could you choose to put a very large % of your contracting income into a pension (something like 80%), and then have that pension start early enough (say when you're 45 for example)?

Would this be an effective way to minimise your tax burden?

It is probably the safest form of "tax avoidance". You get 40% tax relief on the way in, and even though you would be taxed on the income from the pension, you can take part of it as a tax free lump sum. With the benefit of hindsight I would probably have gone PAYE and done this instead of getting involved with IR35 or whacky schemes.

PS. if you get a SIPP you can also manage it yourself and have access to very wide range of investments

[ChimpMaster]

But can you opt to take your pension early, say at 45? Or is there a minimum aged of 55 enforced?

If I did this I would put the pension money into a low risk / low return fund, so as to not have it all whisked away on the stock markets!

Also, I guess the one weakness is that if you die young you will have never seen most of the money... and it wouldn't form part of your inheritance.

[scott_free]

But can you opt to take your pension early, say at 45? Or is there a minimum aged of 55 enforced?

If I did this I would put the pension money into a low risk / low return fund, so as to not have it all whisked away on the stock markets!

Also, I guess the one weakness is that if you die young you will have never seen most of the money... and it wouldn't form part of your inheritance.

I've had an endowment thats been left running, I've since switched to a replayment mortgage, luckily its not going towards paying towards my house !

Running for twenty years, be lucky to get what I paid into it - would of been better left in an isa - the "management fees" these company charge really do eat into your investment, has seriously put me off investing heavily into funds, especially into pensions given you can't get the money out

[moorfield]

Thought there was a rule governing maximum of 100% earnings into pension.

IE you earn 70,000 in a tax year, max you can put into a pension is 70,000

I think the new rules allow you to put upto a maximum of £225k per year into a pension, but you will only get tax relief upto your salary level, ie on the first £70k in this example.

[Gonzo]

But can you opt to take your pension early, say at 45? Or is there a minimum aged of 55 enforced?

No, you can't take it before 55.

The rules were changed a couple of years ago, it used to be possible to take the money aged 50.

There were also special rules for some occupations that allowed the pension accumulated from the earnings from that occupation to be withdrawn before aged 50, but these were all professional sportsmen/women IIRC.

[PhilAtBFCA]

Putting all your earnings into a pension

TazMaN

I am not an IFA, and you would be better taking advice from one for your particular circumstances, I would also make sure your IFA is working togeather with your accountant so the tax angle is correct.

There is now a maximum limit that you can put into a pension as has been posted by others. There is also a life time limit.

Whether its tax deductible for coporation tax is a different matter though. For an expense to be deductible it must be "wholly and necessarily for the purposes of the business".

Whilst in my experience contributions up to the salary paid wont normally incite the interest of HMRC, any payments in excess of this may well do.

You need to take advice from your accountant as to what he/she thinks is the maximum your company could contribute for your circumstances and previous contribution history.

Pension planning is a great tax tool, both for inside and outside ir35 contractors and done efficiently it really uses your money well, good luck with your tax planning.

Phil