Your Pension Contributions in 2016
With the end of the tax year looming, pension contributions are a great way to save tax prior to this, as well as being an important part of planning for retirement. Many people think that this is all pensions are for, did you know that you can use your pension to help grow your business? Read on to find out how…
An efficient way to save for retirement
Contributing to your pension pot regularly is a good way to save for retirement, as well as a great way to save on corporation tax if you contribute from your company’s profits. For example, if your business makes £100K profit, the tax on this would be £20K. However, if you were to contribute £20K from your company’s profits into your pension pot, you will reduce your profit to £80K and tax payable would be £16K, therefore saving £4K in corporation tax and investing £20K into your pension at the same time!
Everyone has an annual allowance of up to £40K and you may even be able to pay in more. You should seek advice to establish how much can be paid into a pension for you.
A SSAS (Small Self Administered Scheme) is another type of pension. It is established to provide pension benefits for directors and senior employees and you can bring together existing pensions you may have with the SSAS pension. They can be more flexible than a SIPP.
The scheme allows you to make a loan to your company from the contributions you have made into it. For example, if you were to make an employer contribution to the pension fund of £50K, you will may be able to loan up to 50% of this to your business. Your company may still be able to benefit from using some of the funds.
A SIPP (Self-Invested Personal Pension) is a type of personal pension plan that can be set up by anyone. You can have more control over how your pension pot is invested. Although SIPPs do not have a loan facility, you can still invest in commercial property.
Other great benefits of a pension
- You are able to transfer existing pension benefits from any UK registered pension into any other existing pension you may already have.
- Once you are 55 you can then access your pension pot and take up to 25% as a lump sum tax free.
- If you have children you can start investing into a pension on their behalf too
How do I start saving for my pension?
It is best to get professional advice if you are thinking about setting up a pension scheme. Why not get in touch with our Financial Planning team? If you would like to set up a pension scheme with the aim to reduce the amount of tax you pay, it is important not to leave it to the last minute before your year end to set up a scheme, as this can take a few weeks to do. In order to receive tax relief on contributions in the correct tax year, you will need to make payments on or before your company’s year end.