Using Pension to fund new business

[Eddie Temple]

As per the above . I have an existing personal Aviva Assured fund pension worth approx £65k. I was 55 at my last birthday. I have not been employed since July 2019 and had no income other than a redundancy payment in that time.

During this time I have been working on a new business idea in the renuable energy sector and formed a Limited Company in July 2020 that I 100% own.. We have had very low sales during this period but some purchase of new plant and materials used for R&D of the new project..

What I would like to do ideally is use the pension pot to pay off a little of my remaining house mortgage say £15k and then use the remainder as working capital for the Limited Company. I appreciate I can take a 25% lump sum without being taxed but is there any way to take the remainder without incurring any tax liability.by investing it in the Ltd Co ?

Thanks in advance

Eddie

[Enut]

Anything over the 25% tax free cash is taxed as income. So if you have no other income you can take £12,500 of the taxable element without paying any tax. Do you have any income this tax year?

It may be worth spreading it out over two tax years (good time to do that), to lessen the tax due on the taxable element.

You will trigger the MPAA (Money Purchase Annual Allowance), which means you will be limited to a maximum of £4,000 per annum into pensions from then on. May not seem important at the time but can make a big mess of any future pension planning you might want to do.

Edit: just seen you have no income

If you can take £32,500 this tax year, £8,125 is tax free, the remaining £24,375 would be taxable. £12,500 within your personal allowance therefore only £11,875 taxed at 20% = £2,375 tax to pay.

Assuming tax rates etc stay the same then take the remaining £32,500 next tax year. Pay another £2,375 in tax

You will have taken out £65,000 and paid only £4,750 tax.

Edited by Enut on Friday 19th February 21:15

[ellroy]

Would possibly be expensive, but SIPPs can hold unquoted company shares, at least the full blown ones can, there are restrictions such as they cannot hold in conjunction with other share holders a controlling stake in the business, but that could possibly be a route to take to inject the capital in without removing from your pension scheme.

As ever take professional advice.

[jeff m]

I'm in the US so stuffs a little different, but if you borrowed from your pension.... it would not be income. You would need pay interest on the loan but far better than just taking it.
If you failed to pay it back then it would be taxable.

[Eddie Temple]

Enut. Thanks very much for your thoughts. This is what I was thinking so thanks.

Ellroy... Again thanks for this idea. I think the costs involved would negate the tax saving. i am ,however, going to look into this a little further.

Jeff. This is really what I am looking for but I suspect its not available in the UK.

RunEveryInchOfTheWorld Thanks for your thoughts a 50K loan is not available option due to the age of my Ltd Co (formed July 2020 as stated in my initial post) so I have had no Government support in any way during the pandemic and not eligible for any loans..