Sole Directors of Limited companies - what's everyone doing about pensions?

[Lukejohn]

Hi all.

I am wondering how directors of ltd companies are paying themselves a pension, are you on salaries and joining a particular pension - I havent really paid myself a salary for 3/4 years, just dividends and a small salary.

Thanks

LJ

 

[Gettingthereslowly]

Most Directors I know (sole or otherwise) that own small businesses have set up a Self Invested Pension Plans (Sipp), either through an Independent Financial Advisor or gone direct/DIY themselves.

Once you get the Sipp, the range of funds/assets that can be bought is bewildering.......which is why some choose the support of an IFA.

The company can pay up to £60k per year, per Director, and offset against profits for the year. It’s not dependent on the employee’s earnings (unlike ‘normal employee’ schemes). It is probably THE most tax efficient way of moving money from a company to the individual Director.

I’ve got one with AJ Bell, and One with Vanguard, and am thinking about one with InvestAcc, their Minerva Sipp, as it can hold commercial property (as well as normal shares/funds)

 

[Gettingthereslowly]

Sipps used to be specialist/higher charges and fees, but they are more widespread now/charges more competitive around the 0.5-1% mark.

You can be as involved or not in running of it:

Bung it all in a low cost tracker
Or
Select individual shares/funds
Or
Buy commercial property
Or
A simple interest bearing savings type account.
Or combination of the lot!

I love the research, trading, thinking I’m getting a bargain/buying at the right time/spotted a trend.

Mrs Getting There Slowly can’t be bothered, and for the past 4 years has had a simple savings account in the Sipp.

Guess who’s fund has grown the most over the past 4 years?

 

[Lukejohn]

Most Directors I know (sole or otherwise) that own small businesses have set up a Self Invested Pension Plans (Sipp), either through an Independent Financial Advisor or gone direct/DIY themselves.

Once you get the Sipp, the range of funds/assets that can be bought is bewildering.......which is why some choose the support of an IFA.

The company can pay up to £60k per year, per Director, and offset against profits for the year. It’s not dependent on the employee’s earnings (unlike ‘normal employee’ schemes). It is probably THE most tax efficient way of moving money from a company to the individual Director.

I’ve got one with AJ Bell, and One with Vanguard, and am thinking about one with InvestAcc, their Minerva Sipp, as it can hold commercial property (as well as normal shares/funds)

Thanks that’s it intersting about the commercial property- is that like an investment scheme that your putting trust into other la making wise investments though?

 

[Lukejohn]

---

Sipps used to be specialist/higher charges and fees, but they are more widespread now/charges more competitive around the 0.5-1% mark.

You can be as involved or not in running of it:

Bung it all in a low cost tracker
Or
Select individual shares/funds
Or
Buy commercial property
Or
A simple interest bearing savings type account.
Or combination of the lot!

I love the research, trading, thinking I’m getting a bargain/buying at the right time/spotted a trend.

Mrs Getting There Slowly can’t be bothered, and for the past 4 years has had a simple savings account in the Sipp.

Guess who’s fund has grown the most over the past 4 years?

I guess they all come with the same constrainsts in terms of access upon retirement age?

 

[WaveJumper]

All schemes be it pension or otherwise carry the same risk "your funds may go up or down" Don't forget to make use of your ISA's bung in 20k a year, you can have self investing so again you can make your own choices (take money out at the drop of a hat if needed) if you've not be doing this already you've missed out on investing 60k and all proceeds are tax free unlike when you try to drawdown from your pension pot something to think about

 

[Lukejohn]

I guess the personal income once it’s out the limited is whole new subject - I max the 20k each year. It’s the pension that is a sticking point. I can go back 3 years as I understand , but looks like a good way to get cash out the Business and plan for the future if I make it to retirement. It’s just always a head scratcher thinking about what pensions how you set them up and attach to wages. I may have to go on a proper wage soon because I have received a grant for research they don’t allow dividends for claims - unfortunately I estimate that will lose me around 15k a year on tax (but gov is giving me the money for free) - well for outputs of course - so I win still. Although the advantages for dividends are decreasing, I’ve done some sums on the gov calculator and if you do profit over 100k it’s about 23% corp tax now. My accountant says still better to do dividends with new corp tax scales - but of course I can’t for the next few years. But overall I guess I’m thinking about the pensions side and death in service stuff. Any advice where to go first - thinking I should read on my options first then seek professional advice? I don’t want to use local people unfortunately there are a lot of scammers round here - very expensive and aren’t actually there intelligent. Best LJ

 

[MikeJ]

The company can pay up to £60k per year, per Director, and offset against profits for the year. It’s not dependent on the employee’s earnings (unlike ‘normal employee’ schemes). It is probably THE most tax efficient way of moving money from a company to the individual Director.

Isn't the annual allowance £40k now?

 

[MikeJ]

A quick bit of googling says no, it's £60k, though other places still refer to £40k

 

[Gettingthereslowly]

Yep....£60k now.....husband and wife directors =£120k shielded from corp tax, National Insurance, Higher Rate Tax....each year.....totally wrong I think, 'normal employees' don't get these kind of breaks.

 

[Gettingthereslowly]

Re: commercial property.

Yes - it could be a property fund
But it can actually be used to buy a commercial property for either your own occupation/business use e.g. shop/warehouse; or to buy a building and lease it out.

Due to the extra pension trustee fees involved (approx £1k per yr), its not normally suitable for properties less than say £200k....or at least works out expensive for smaller properties.

The Sipp is able to borrow money (up to 50%) for commercial property purchase, e.g. you have £100k in your pension pot, the Sipp can borrow £100k from funder, and you can buy £200k property. The rent from the property pays the loan, and profit stays tax free within the Sipp....ready for when you retire.

Like Wavejumper suggests, ISA's play their part to..........depending on your age, dumping loads of money into a pension, which you can't touch for 20-30-40 yrs may not be the best utilisation of resources. Its a balancing act.

 

[MBE2017]

Consider a SASS potentially as well. For such a complex subject, you need to get good quality professional advice.

 

[fisicx]

A combination of private pension, ISAs and a rental property. I could be more adventurous with my money but am far too lazy.

 

[Lukejohn]

Where do UI start with sending that 60k over to a pension? I also intend in buying some property, my latest thinking is starting a co working space in my area, charging free lancers etc to use the facility - that or offices. Then we would take one for our small team.

 

[Daybooks]

A small salary is still a salary. As you probably know there are tax efficient ways but please do remember pensions (and investment) advice is regulated.

 

[Conor O'Sullivan]

Just a heads up to all - the 'important things to note' at the bottom of the article aren't 100% accurate. There's a load of nuance missing. Eg you use to be able to access pensions at 55, but this is increasing to 58. It's effectively 10 years before state retirement age. Other nuances in the other points as well