- Original Poster
- #1
Hi All,
Firstly i appreciate this forum doesn't really provide advice like this and i fully understand this is a question for an IFA but i thought it may be worth asking anyway... just a sounding board really
Bit of background ... I own two businesses 50 / 50 along with a Co Director. Our partners are also share holders in both, all of us have rights to use Business Asset Relief i.e. share holders for more than 2 years. Both myself and my business partner are maxed out on Pension Payments inc previous years. Our partners do not have a pension. We are all higher rate tax payers
One of our business is being sold, Heads are all agreed and the deal will be done before end of March this year, we are keeping the other business.
The plan is to max out the Asset Relief Tax for both our partners and my business partner and myself take the balance just in case we decide to sell the other business in the futures ( assuming Asset relief is a thing in the future )
Then i got a thinking.... As neither partner has a pension in theory they can make full use of paying into the previous three years and a quick google suggests a max pension payment for the current tax year could be up to 200k
My thinking
Am i right to assume the following - As they will be paying 10% on the sale value, if they use some of that cash and pay it into a pension will they then get Pension Tax relief.. i.e. 20% straight away with another 20% to follow via their Self Assessment... seems to good to be true
If this is true its worth paying it into a pension as they could increase their pot by another 40k .. but then you have to be careful on drawing it back again or you pay tax on your own money
200k ( or maybe circa 240k ) Pension isn't going to yield a huge pension for them but we are all 2 years off being 55 so i was thinking.. keep the pension until 55.. take a 25% cash free lump sum ( 60k ) ... then draw off the pension in 12k annual amounts keeping it under the tax threshold. That would take 15 years to get the money back so is it worth it
Further thoughts.... If you don't get any Pension Tax relief its really not worth considering as you are paying in money that is yours and Tax has already been paid so why would you take 200k which is tax free at that stage only to wait 15 year to get it back if you don't want to pay any more tax on it.. but if you get a free 40k extra.. is it worth doing
Further further thoughts....
How about taking the 200k and putting it into an high interest savings account ( is there such a thing these days )
Assuming you take 200k, put it into a savings account where you get 4%.. many online banks pay this
using the 15 year time frame to get the money back if it went into a pension... 200k @ 4% over 15 years yields 360k at the end
Thats way more than 40k pension tax relief ( gained in year 5 ) but only works if you never touch the money.. example below, ignore the fact it say $.. was a quick google search
Interested in your thoughts... but i think doing this exercise has helped answer the question for me... keep the cash and spend it on a Ferrari
Firstly i appreciate this forum doesn't really provide advice like this and i fully understand this is a question for an IFA but i thought it may be worth asking anyway... just a sounding board really
Bit of background ... I own two businesses 50 / 50 along with a Co Director. Our partners are also share holders in both, all of us have rights to use Business Asset Relief i.e. share holders for more than 2 years. Both myself and my business partner are maxed out on Pension Payments inc previous years. Our partners do not have a pension. We are all higher rate tax payers
One of our business is being sold, Heads are all agreed and the deal will be done before end of March this year, we are keeping the other business.
The plan is to max out the Asset Relief Tax for both our partners and my business partner and myself take the balance just in case we decide to sell the other business in the futures ( assuming Asset relief is a thing in the future )
Then i got a thinking.... As neither partner has a pension in theory they can make full use of paying into the previous three years and a quick google suggests a max pension payment for the current tax year could be up to 200k
My thinking
Am i right to assume the following - As they will be paying 10% on the sale value, if they use some of that cash and pay it into a pension will they then get Pension Tax relief.. i.e. 20% straight away with another 20% to follow via their Self Assessment... seems to good to be true
If this is true its worth paying it into a pension as they could increase their pot by another 40k .. but then you have to be careful on drawing it back again or you pay tax on your own money
200k ( or maybe circa 240k ) Pension isn't going to yield a huge pension for them but we are all 2 years off being 55 so i was thinking.. keep the pension until 55.. take a 25% cash free lump sum ( 60k ) ... then draw off the pension in 12k annual amounts keeping it under the tax threshold. That would take 15 years to get the money back so is it worth it
Further thoughts.... If you don't get any Pension Tax relief its really not worth considering as you are paying in money that is yours and Tax has already been paid so why would you take 200k which is tax free at that stage only to wait 15 year to get it back if you don't want to pay any more tax on it.. but if you get a free 40k extra.. is it worth doing
Further further thoughts....
How about taking the 200k and putting it into an high interest savings account ( is there such a thing these days )
Assuming you take 200k, put it into a savings account where you get 4%.. many online banks pay this
using the 15 year time frame to get the money back if it went into a pension... 200k @ 4% over 15 years yields 360k at the end
Thats way more than 40k pension tax relief ( gained in year 5 ) but only works if you never touch the money.. example below, ignore the fact it say $.. was a quick google search
| Year | Deposit | Interest | Ending balance |
|---|---|---|---|
| 1 | $200,000.00 | $8,000.00 | $208,000.00 |
| 2 | $0.00 | $8,320.00 | $216,320.00 |
| 3 | $0.00 | $8,652.80 | $224,972.80 |
| 4 | $0.00 | $8,998.91 | $233,971.71 |
| 5 | $0.00 | $9,358.87 | $243,330.58 |
| 6 | $0.00 | $9,733.22 | $253,063.80 |
| 7 | $0.00 | $10,122.55 | $263,186.36 |
| 8 | $0.00 | $10,527.45 | $273,713.81 |
| 9 | $0.00 | $10,948.55 | $284,662.36 |
| 10 | $0.00 | $11,386.49 | $296,048.86 |
| 11 | $0.00 | $11,841.95 | $307,890.81 |
| 12 | $0.00 | $12,315.63 | $320,206.44 |
| 13 | $0.00 | $12,808.26 | $333,014.70 |
| 14 | $0.00 | $13,320.59 | $346,335.29 |
| 15 | $0.00 | $13,853.41 | $360,188.70 |
Interested in your thoughts... but i think doing this exercise has helped answer the question for me... keep the cash and spend it on a Ferrari
