Posted on 10th March 2016
Investing in a pension personally allows you to benefit from tax relief at your highest marginal rate but you must draw the contribution as salary and dividends. However you can also invest directly via your company which not only saves the hassle of drawing out the funds but also reduces your corporation tax bill without any benefit in kind considerations.
The only cap on how much you can invest is the lifetime allowance at £1.2m and the annual allowance at £40,000. If you have a lump sum to invest then make sure that you have done so in plenty of time of your company year-end to avoid paying tax on any over payment.
Whilst the unbeatable tax breaks associated with pension investment have been around for more than a decade now, the rigid nature of how you access the funds in retirement has undeniably been a stumbling block for some Freelancers.
Since the 2014 Budget, you will be able to exploit the upfront tax benefits, grow a fund tax efficiently, but then have access to the bulk of the fund at or during retirement. For the first time, you could withdraw the whole of your pension fund at age 55 and you are no longer confined to purchasing an annuity at age 75 so there is potential for you to continue taking on part time contracts or similar well past retirement age to supplement your income.
Pension investment may also become a key plank of any estate planning work that you undertake to gift pensions to any dependents.
If you are interested in using a pension as a key part of your tax planning please contact us today.
Nicola J O'Sullivan -
Founder | Xero Champion | IR35 Expert
Share this post: