Hopefully a simple question about making pension contributio
Discussion
Granfondo said:
Granfondo said:
When did they change it from 55?
Anyone?I doubt they'll change it much as one of the reasons they did that and allowed the tax deduction on the first lump some was to create a bridge between people hitting the age of lowered earnings and possible unemployability due to health or skills and the state pension which is running away and for some of todays 20 somethings could well be over 70.
FredClogs said:
Granfondo said:
Granfondo said:
When did they change it from 55?
Anyone?I doubt they'll change it much as one of the reasons they did that and allowed the tax deduction on the first lump some was to create a bridge between people hitting the age of lowered earnings and possible unemployability due to health or skills and the state pension which is running away and for some of todays 20 somethings could well be over 70.
Granfondo said:
FredClogs said:
Granfondo said:
Granfondo said:
When did they change it from 55?
Anyone?I doubt they'll change it much as one of the reasons they did that and allowed the tax deduction on the first lump some was to create a bridge between people hitting the age of lowered earnings and possible unemployability due to health or skills and the state pension which is running away and for some of todays 20 somethings could well be over 70.
Jockman said:
Remember dividends are not earned income. You cannot make personal contributions on the back of them alone.
ah i didn't realise that thanks, so in my position should i make a 10K contribution from my company or £10k out of my PAYE salary and take the corp tax hit and income tax on the dividend? at the moment i'm just taking divis but i'm now thinking more about the long term savings as i've finally moved house!Nano2nd said:
Jockman said:
Remember dividends are not earned income. You cannot make personal contributions on the back of them alone.
ah i didn't realise that thanks, so in my position should i make a 10K contribution from my company or £10k out of my PAYE salary and take the corp tax hit and income tax on the dividend? at the moment i'm just taking divis but i'm now thinking more about the long term savings as i've finally moved house!
Jockman said:
There is no harm in leaving retained profits in the Company rather than taking them out as Divis. We do it all the time.
Thanks and that's where I am very confused - I thought the Corporation tax was on all of a year's profit, whether we use it for Div payment or retain in the Company. I believe our accountant has made us pay Corp tax on that 16k.My main problem with our accountants is that they can't explain themselves clearly and add loads of words that hide the important (simple) messages.
nickfrog said:
Jockman said:
There is no harm in leaving retained profits in the Company rather than taking them out as Divis. We do it all the time.
Thanks and that's where I am very confused - I thought the Corporation tax was on all of a year's profit, whether we use it for Div payment or retain in the Company. I believe our accountant has made us pay Corp tax on that 16k.My main problem with our accountants is that they can't explain themselves clearly and add loads of words that hide the important (simple) messages.
By retaining it "you" will not have to pay the divi tax but then again you won't be able to spend it on a holiday or a nice new car either - unless you can persuade your company directorship to buy you a new company car or send you on a two week training course in Davos in the ski season, which you might be able to do if they're good employers.
nickfrog said:
Thanks and that's where I am very confused - I thought the Corporation tax was on all of a year's profit, whether we use it for Div payment or retain in the Company. I believe our accountant has made us pay Corp tax on that 16k.
You are correct. So is your Accountant if your taxable profit was £16k.nickfrog said:
What's Div tax ? I understand it's already (and precisely) covered by the Corp tax. But because I don't understand much, this could be wrong.
It's a tax on Divs. Fred will explain. 
It's the persona tax you pay on your Dividends. Possible that your Accountant was calculating this for you on your personal tax return.
nickfrog said:
So it's taxable yet will not attract ANY tax as the ltd cy has already paid it "for me" as Corporation Tax ?
BUT I can't get any fiscal pension benefit on that presumably ? (apart from getting the ltd cy to pay "in time" as it reduces the profit and therefore the CT liability)
I think you're referring to the dividend tax credit, which since April 2016 has been defunct. BUT I can't get any fiscal pension benefit on that presumably ? (apart from getting the ltd cy to pay "in time" as it reduces the profit and therefore the CT liability)
Personally you now pay tax on dividends, you get the first £5k tax free, you pay 7.5% (basic rate), 32.5% (higher rate) and 38.1% (additional rate) on the rest.
As for YOUR pension contributions you will get the 25% government contribution (you can call this tax relief) if you're a non tax payer or basic rate tax payer and 40% if you're a higher rate tax payer.
For instance even if you pay no income tax i.e you earn below the allowance or are a child you still get the 25% tax relief on YOUR contributions.
Your employers contributions attract no tax relief but it is an expense to the company, so no Corp Tax will be paid on that £100, so you would save £20 if you otherwise just left it in the company as retained profit, or possibly more if you otherwise paid it as a divi because YOU may have to pay divi tax on it.
So if your employer contributes £100pcm and you contribute £100 you will have £225pcm to invest within your SIPP (or £240pcm if you're a higher rate tax payer).
Edited by FredClogs on Thursday 23 February 12:56
FredClogs said:
I think you're referring to the dividend tax credit, which since April 2016 has been defunct.
Personally you now pay tax on dividends, you get the first £5k tax free, you pay 7.5% (basic rate), 32.5% (higher rate) and 38.1% (additional rate) on the rest.
As for YOUR pension contributions you will get the 25% government contribution (you can call this tax relief) if you're a non tax payer or basic rate tax payer and 40% if you're a higher rate tax payer.
For instance even if you pay no income tax i.e you earn below the allowance or are a child you still get the 25% tax relief on YOUR contributions.
Your employers contributions attract no tax relief but it is an expense to the company, so no Corp Tax will be paid on that £100, so you would save £20 if you otherwise just left it in the company as retained profit, or possibly more if you otherwise paid it as a divi because YOU may have to pay divi tax on it.
So if your employer contributes £100pcm and you contribute £100 you will have £225pcm to invest within your SIPP (or £240pcm if you're a higher rate tax payer).
Fred, thank you so much. Sadly those explanations are going to take a while for me to understand.Personally you now pay tax on dividends, you get the first £5k tax free, you pay 7.5% (basic rate), 32.5% (higher rate) and 38.1% (additional rate) on the rest.
As for YOUR pension contributions you will get the 25% government contribution (you can call this tax relief) if you're a non tax payer or basic rate tax payer and 40% if you're a higher rate tax payer.
For instance even if you pay no income tax i.e you earn below the allowance or are a child you still get the 25% tax relief on YOUR contributions.
Your employers contributions attract no tax relief but it is an expense to the company, so no Corp Tax will be paid on that £100, so you would save £20 if you otherwise just left it in the company as retained profit, or possibly more if you otherwise paid it as a divi because YOU may have to pay divi tax on it.
So if your employer contributes £100pcm and you contribute £100 you will have £225pcm to invest within your SIPP (or £240pcm if you're a higher rate tax payer).
I know what SIPP stands for but I don't know what it means - I currently have both private pension schemes and previous employer schemes where I roughly choose my level of risk and they do the rest : is that a SIPP ? If not, I don't think I want a SIPP. I'd like the same thing as I have. Does that change anything ?
FredClogs said:
As for YOUR pension contributions you will get the 25% government contribution (you can call this tax relief) if you're a non tax payer or basic rate tax payer and 40% if you're a higher rate tax payer.
For instance even if you pay no income tax i.e you earn below the allowance or are a child you still get the 25% tax relief on YOUR contributions.
Your employers contributions attract no tax relief but it is an expense to the company, so no Corp Tax will be paid on that £100, so you would save £20 if you otherwise just left it in the company as retained profit, or possibly more if you otherwise paid it as a divi because YOU may have to pay divi tax on it.
So if your employer contributes £100pcm and you contribute £100 you will have £225pcm to invest within your SIPP (or £240pcm if you're a higher rate tax payer).
You'll never understand them as they are wrong !For instance even if you pay no income tax i.e you earn below the allowance or are a child you still get the 25% tax relief on YOUR contributions.
Your employers contributions attract no tax relief but it is an expense to the company, so no Corp Tax will be paid on that £100, so you would save £20 if you otherwise just left it in the company as retained profit, or possibly more if you otherwise paid it as a divi because YOU may have to pay divi tax on it.
So if your employer contributes £100pcm and you contribute £100 you will have £225pcm to invest within your SIPP (or £240pcm if you're a higher rate tax payer).
Edited by FredClogs on Thursday 23 February 12:56
You're almost there Fred. There are a couple of things to straighten out here so people don't get the wrong idea.
Tax relief will be at 20%, 40% or 45% (in some cases an effective 60% is achieveable). Your 25% figure muddies the water a bit. That's just a way of calculating the gross amount from the NET.
Your figures on the gross amount that would end up in the pension are also off. The gross figure for a higher rate tax payer would be no different to that of a basic rate taxpayer - it is the net cost that would be different. The pension provider will only reclaim (often actually prefunding) basic rate of tax on personal contributions. The contributor achieves 40% relief by claiming the balance through their tax return (generally).
HTH
nickfrog said:
Fred, thank you so much. Sadly those explanations are going to take a while for me to understand.
I know what SIPP stands for but I don't know what it means - I currently have both private pension schemes and previous employer schemes where I roughly choose my level of risk and they do the rest : is that a SIPP ? If not, I don't think I want a SIPP. I'd like the same thing as I have. Does that change anything ?
I stand corrected as above.I know what SIPP stands for but I don't know what it means - I currently have both private pension schemes and previous employer schemes where I roughly choose my level of risk and they do the rest : is that a SIPP ? If not, I don't think I want a SIPP. I'd like the same thing as I have. Does that change anything ?
A Sipp is just a stocks and shores investment account that you can't get at until your 55 and you don't get taxed on any of the interest or income it generates - you pay the tax when you draw it out (at 55 or above) based on the rules of the day.
It's just like an ISA, you put money in monthly and decide what it's invested in. It's very very easy to set up so you just invest that money each month by buying a simple long term generic pension fund, that same as your private pension would do. There is loads available from the likes of axa, scotish widows, hsbc, legal and general.
There are also other funds with more focused levels of risk or investment but you don't have to touch them.
See the HL website, it's incredibly easy to set up and understand. You'll have to put in some effort to f
k it up. The biggest mistake is choosing a fund that doesn't have competitive fees as I mentioned above. You can pay a fancy pants IFA to do it for you but the chances are you'll be paying for your peace of mind, and quite a lot, rather than any particular expert investment crystal ball excellence.You can always chop and change if you get into it or later on. The way a managed personal pension fund or stake holder would work to protect any capital is start off investing in quite high risk equities and/or index trackers and then over time as you approach 55 it will start to transfer the capital into less risky bonds and then cash as you come to the point you might start drawing it out, that way you don't have a disappointing 10% or 20% capital loss on your 54th year.
Thanks - sounds very much like a pension fund. I don't understand the difference between a SIPP and what I currently have. What I currently have is a personal pension plan opened 20 years ago and x2 funds from my last 3 PAYE employers, 2 of them with Scottish Windows and 1 of them with another provider when I worked with AIG. If a SIPP is different, what's the benefit ?
nickfrog said:
Thanks - sounds very much like a pension fund. I don't understand the difference between a SIPP and what I currently have. What I currently have is a personal pension plan opened 20 years ago and x2 funds from my last 3 PAYE employers, 2 of them with Scottish Windows and 1 of them with another provider when I worked with AIG. If a SIPP is different, what's the benefit ?
Gut instinct, if you're going to buy a SIPP, then at least be able, ready and willing to use it properly. If not, don't bother. SIPPs aren't bad at all, but for most people who have them, they're needlessly expensive and complex, and are packed with unused functionality that is never used. Setting one up is a doddle, but how are you going to manage it? Consider instead, a modern, bog standard personal pension. Most PPs these days with good and decently managed funds in the region of 25k, should cost c0.5%. If you have an old PP and assorted waifs and straifs there's a plausible case to consider consolidating them.
Edited by Ginge R on Thursday 23 February 15:36
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