‘Two tax year’ contribution opportunity window is closing
11 February 2018
Jeff Steedman, head of SIPP/SSAS Business Development at Xafinity, looks at ways to improve the pension provision and reduce future tax liabilities of the company directors in the run up to the end of the tax year.
It amazes me just how many clients in 2018 “have no pension provision at all” and yet they have ambitious plans for their business and pension. Many of these successful entrepreneurs simply see their business or their property as their pension.
There is however a great financial planning opportunity at this time of year to make some excellent inroads into improving the pension provision, and reducing future tax liabilities, of the company directors. This is mainly due to the proximity of the 2017/18 tax year-end. Companies can pay contributions across two tax years, thus maximising annual allowances. There is the added bonus of reducing future company tax liabilities, which always pleases the company accountant.
Case study – the joint SIPP and the commercial premises
Whilst a “joint (or family) SIPP” can be set up for 2 or 22 members, the most common scenario we see is a “Mr & Mrs” operated small company, so let’s use that as the basis for our Case Study:
The clients discuss their options with their financial adviser and their accountant. They conclude that bringing the company premises into the pension scheme has material tax advantages, and the following joint SIPP pension structure is set up:
The various parties involved are affected by tax and cash flow in the following ways:
The clients personally
They have sold a personal asset – selling their commercial property affects them as follows:
The future growth of the SIPP & its mortgage
The Joint SIPP can grow in two ways:
1. Rental income of £18k per annum
2. Any capital growth in the value of the property – and this is free from future Capital Gains Tax now it’s owned by the SIPP.
In the first 5 years or so, the rental payments can be used by the joint SIPP to repay the pension mortgage. Once repaid, the property is effectively 100% owned by the SIPP and the residual rental income can then be re-invested into other investments/funds.
The future – what happens if?
Of course, things can change but a joint SIPP can deal with:
It is truly the most flexible of products.
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