Short term pension investment
Discussion
I'm looking to retire in about 3 to 4 years when I'm 60. I have a civil service pension and a defined benefit pension from a former private sector employer to look forward to. Between them, these will be enough for me to live on.
I've been self-employed via a limited company for the last 15 years and making no pension contributions as part of that, but now I've got a fair bit of surplus cash in the business that I'm going to be hit for corporation tax on if I don't do anything with. My plan is to put this cash into a pension which I can start to take out alongside my others when I'm 60. I know the invested money won't have much time to make any decent returns, but am I correct in thinking it's worthwhile doing this to avoid the 19% corp tax and 7.5% dividend tax it would cost me to get it out otherwise?
I've been self-employed via a limited company for the last 15 years and making no pension contributions as part of that, but now I've got a fair bit of surplus cash in the business that I'm going to be hit for corporation tax on if I don't do anything with. My plan is to put this cash into a pension which I can start to take out alongside my others when I'm 60. I know the invested money won't have much time to make any decent returns, but am I correct in thinking it's worthwhile doing this to avoid the 19% corp tax and 7.5% dividend tax it would cost me to get it out otherwise?
Definitely a good/tax-efficient option putting it into a pension. Depending how much "surplus cash" you're talking about you may run into annual allowance limits (£40k). If you have unused allowance from previous years you can use that, but worth knowing about if you're trying to dump a large chunk at once.
It's possible you could also get some Corporation Tax back if the contribution causes the company to make a trading loss in the current year. It used to be just one year you could carry back the loss but I believe this has been extended recently.
As always, speak to an accountant, I am not a professional but was in a similar position with my Ltd co.
Edit to add: Also look into options around Members Voluntary Liquidation and Business Asset Disposal Relief if you plan to close down the company any time soon.
It's possible you could also get some Corporation Tax back if the contribution causes the company to make a trading loss in the current year. It used to be just one year you could carry back the loss but I believe this has been extended recently.
As always, speak to an accountant, I am not a professional but was in a similar position with my Ltd co.
Edit to add: Also look into options around Members Voluntary Liquidation and Business Asset Disposal Relief if you plan to close down the company any time soon.
It will probably be about £30,000 I reckon. I solved the "problem" last year by buying an EV on the company and offsetting the whole purchase price off against corporation tax.
I'll have similar amounts over the next 3 or 4 years, so my back of a fag packet maths looks like this:
4 x £30,000 = £120,000.
Option one - do nothing and have to pay 20% corporation tax and 7.5% dividend tax to get it out = £33,000 lost.
Option two - stick it all in a pension = no corporation tax, 25% out tax free as a lump sum and then 20% income tax on the rest taken out as a pension = £18,000 lost.
I'll have similar amounts over the next 3 or 4 years, so my back of a fag packet maths looks like this:
4 x £30,000 = £120,000.
Option one - do nothing and have to pay 20% corporation tax and 7.5% dividend tax to get it out = £33,000 lost.
Option two - stick it all in a pension = no corporation tax, 25% out tax free as a lump sum and then 20% income tax on the rest taken out as a pension = £18,000 lost.
Do an MVL (Members Voluntary Liquidation) on the company when you've finished with it. That way you can get your hands on up to £1,000,000 and pay 10% tax. The MVL costs around £3K - 4K I think.
The downside is that you can't start another company in the same line of business for 2 years - but I don't think that will impact you.
There's nothing dodgy about an MVL - it's all legit and totally above board.
The downside is that you can't start another company in the same line of business for 2 years - but I don't think that will impact you.
There's nothing dodgy about an MVL - it's all legit and totally above board.
omniflow said:
Do an MVL (Members Voluntary Liquidation) on the company when you've finished with it. That way you can get your hands on up to £1,000,000 and pay 10% tax. The MVL costs around £3K - 4K I think.
The downside is that you can't start another company in the same line of business for 2 years - but I don't think that will impact you.
There's nothing dodgy about an MVL - it's all legit and totally above board.
+1 for MVL, and can be had much cheaper than that if your company affairs are in good order. I had a couple of quotes at over £3k but ended up getting MVL Online to do mine, just under £1700 all in, absolutely couldn't fault them.The downside is that you can't start another company in the same line of business for 2 years - but I don't think that will impact you.
There's nothing dodgy about an MVL - it's all legit and totally above board.
Top tip: Take out what you can at 7.5% dividend rate first, then when you MVL try and time it so you can do two distributions in different tax years (two lots of CGT allowance)
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