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How do I save for retirement as company director?

Discussion in 'General Business Forum' started by bobbo mcbobbo, May 27, 2020.

  1. bobbo mcbobbo

    bobbo mcbobbo UKBF Contributor Free Member

    33 4
    This might be a basic question but with so many options it's confusing to know where to start.

    I'm the director of a small Ltd company with no employees. I currently don't take a salary as I have a separate part-time job as well. I just started paying myself dividends from the company. I don't currently have any pension from either job.

    What's the best (most tax efficient?) way to go about starting to save for my future. I've heard of a SIPP, is this what I'm after? Or an S&S ISA? Or is there a way the company can pay into my pension fund before tax? Really any pointers in the right direction would be helpful.
     
    Posted: May 27, 2020 By: bobbo mcbobbo Member since: Jan 21, 2018
    #1
  2. Scalloway

    Scalloway UKBF Legend Free Member

    16,171 3,420
    Posted: May 27, 2020 By: Scalloway Member since: Jun 6, 2010
    #2
  3. The Byre

    The Byre UKBF Legend Full Member

    9,985 4,062
    The very best way to save for your retirement is to create as much equity in your younger years as you can. This can be anything, houses, land, a forest or two, whatever floats your boat. Plans and funds and assurance schemes are all there to profit someone and that someone ain't you!

    There are types of property that are tax-free when sold for profit after X-number of years and/or inherited.

    All those savings and investment funds work on a percentage point here and a percentage point there and they do that over several levels and some even invest in one another so that your savings are being milked by others all the time. Everyone wants your money and the financial sector most of all!
     
    Posted: May 27, 2020 By: The Byre Member since: Aug 13, 2013
    #3
  4. STDFR33

    STDFR33 UKBF Big Shot Free Member

    4,392 1,157
    I can only reinforce what has been said. There’s a lot of options out there and speaking to an IFA is highly recommended and the most tax efficient may not be the best option.
     
    Posted: May 27, 2020 By: STDFR33 Member since: Aug 7, 2016
    #4
  5. Mr D

    Mr D UKBF Legend Free Member

    22,888 2,757
    Basically the same way any other employee does.
     
    Posted: May 27, 2020 By: Mr D Member since: Feb 12, 2017
    #5
  6. Rawlinson Pryde

    Rawlinson Pryde UKBF Contributor Free Member

    52 17
    You should also make sure you are tax efficient with your own limited company. Sounds like you are missing out not taking a small salary.
     
    Posted: May 27, 2020 By: Rawlinson Pryde Member since: May 9, 2020
    #6
  7. STDFR33

    STDFR33 UKBF Big Shot Free Member

    4,392 1,157
    The OP states that they have a part time job which may consume their personal allowance.
     
    Posted: May 27, 2020 By: STDFR33 Member since: Aug 7, 2016
    #7
  8. SillyBill

    SillyBill UKBF Regular Free Member

    171 74
    For the last few years I have paid myself a salary of whatever the higher rate threshold is + the max SIPP contribution (£40k) of which I claim the 20% back on on top of the 20% credited straight away. And save the employers national employment insurance contribution too. I also pay a dividend. I max out the S&S ISA every year through my post tax salary and divis. Personally this suits me to the ground as I prefer to manage my own pension and financial affairs. Even if you were totally clueless a few passive trackers following the markets at very low cost management fees would outperform any actively managed funds or pensions. I do have some old work pensions (low value though) which I have been too lazy to transfer into my SIPP and not impressed with how they have performed relative to DIY.
     
    Posted: May 27, 2020 By: SillyBill Member since: Dec 11, 2019
    #8
  9. Rawlinson Pryde

    Rawlinson Pryde UKBF Contributor Free Member

    52 17
    I know but my point still stands! Depends how much in dividends they are taking and their part time job pay.
     
    Posted: May 27, 2020 By: Rawlinson Pryde Member since: May 9, 2020
    #9
  10. bobbo mcbobbo

    bobbo mcbobbo UKBF Contributor Free Member

    33 4
    Thanks for the suggestion, but yes the part time job consumes my tax free allowance.
     
    Posted: May 27, 2020 By: bobbo mcbobbo Member since: Jan 21, 2018
    #10
  11. Rawlinson Pryde

    Rawlinson Pryde UKBF Contributor Free Member

    52 17
    But if you are taking more than £2k in dividends you can still potentially do better with some form of salary.

    You may also want to consider paying into a pension from your limited company.

    The best thing to do as mentioned above is to see a financial adviser who can also advise on pensions and your options to try reach your goals.
     
    Posted: May 27, 2020 By: Rawlinson Pryde Member since: May 9, 2020
    #11
  12. bobbo mcbobbo

    bobbo mcbobbo UKBF Contributor Free Member

    33 4
    Yes I am taking more than 2k in dividends. Could you explain how some salary could benefit? As far as I understand the excess over 2k in dividends are taxed at 7.5% whereas the salary, while paid before 19% corporation tax, would be subject to 20% income tax + national insurance contributions (13%?).
     
    Posted: May 27, 2020 By: bobbo mcbobbo Member since: Jan 21, 2018
    #12
  13. bobbo mcbobbo

    bobbo mcbobbo UKBF Contributor Free Member

    33 4
    Don't I have to get a SIPP anyway as I don't have a workplace pension? What alternative would I have?
     
    Posted: May 27, 2020 By: bobbo mcbobbo Member since: Jan 21, 2018
    #13
  14. billybob99

    billybob99 UKBF Regular Free Member

    1,546 460
    You don't.

    You enjoy life and move over to the afterlife young.
     
    Posted: May 27, 2020 By: billybob99 Member since: Apr 23, 2013
    #14
  15. Rawlinson Pryde

    Rawlinson Pryde UKBF Contributor Free Member

    52 17
    Your qualified accountant should have told you this. If you do not have a qualified accountant then I will show you an example how we can effectively help to pay for ourselves and handle your HMRC and Companies House compliance!

    You kind of answered your own question there.

    This is just a generic example and assumed for ease the taxpayer stays in the basic rates of tax. If taxpayer takes a dividend of £8,632 in excess of the first £2k, this is how a salary could potentially increase their overall wealth between the individual and company.

    Dividend of £8,632 is taxed at 7.5% personally and no deduction against Corporation Tax.

    Salary of £8,632 has no NI. The company also saves Corporation Tax at 19%, but the taxpayer pays Income Tax at 20% = 1% tax overall

    Using a salary of £8,632 saves tax at 6.5% (7.5% - 1%) = £561.08 in this example.

    There are other simple savings that can be made by using other allowances. I obviously do not know your whole situation, so cannot advise what you should do. This is why we would always recommend you should seek professional advice.
     
    Posted: May 28, 2020 By: Rawlinson Pryde Member since: May 9, 2020
    #15
  16. mattk

    mattk UKBF Newcomer Free Member

    2,176 804
    You can set up a SIPP through most major investment platforms - I use Hargreaves Lansdown. I then make an employer's contribution directly from my limited company into my SIPP. This contribution is tax deducible for my company and incurs no tax liabilities for me personally (up to £40k per year).
     
    Posted: May 28, 2020 By: mattk Member since: Dec 5, 2005
    #16
  17. bobbo mcbobbo

    bobbo mcbobbo UKBF Contributor Free Member

    33 4
    Thanks, this is useful. I have a friend who uses Hargreaves as well, so sounds like might be worth looking into. When you make an employer's contribution do you also have to make a personal contribution? Or can the SIPP be made up of 100% employer's contributions?
     
    Posted: May 28, 2020 By: bobbo mcbobbo Member since: Jan 21, 2018
    #17
  18. bobbo mcbobbo

    bobbo mcbobbo UKBF Contributor Free Member

    33 4
    Thanks for the very clear example :) That makes sense. I wasn't aware that there is a 0% NI band for employers. I guess this is still 0% even if I have the other salary from another job right?

    I have an accountant. He hasn't mentioned this yet, only that I should take some dividends. He might suggest it at year end though, as I've only just started taking any money out of the company at all.
     
    Posted: May 28, 2020 By: bobbo mcbobbo Member since: Jan 21, 2018
    #18
  19. bobbo mcbobbo

    bobbo mcbobbo UKBF Contributor Free Member

    33 4
    To those suggesting speaking to an IFA, I'm only looking to put aside a couple hundred quid per month for now. Isn't that too small to involve an IFA?
     
    Posted: May 28, 2020 By: bobbo mcbobbo Member since: Jan 21, 2018
    #19
  20. Scalloway

    Scalloway UKBF Legend Free Member

    16,171 3,420
    NI is a tax on employment. It is not cumulative, each job starts at zero.
     
    Posted: May 28, 2020 By: Scalloway Member since: Jun 6, 2010
    #20