Q. I am registered as ltd company and wish to retire. Can I use the balance of capital in the business to fund a directors pension and take the penion immediately?
A. It may be better to allow the company to make the contributions while it is still active so as to reduce profits and thereby its final corporation tax liability rather than using all of the final distribution, which may be subject to some personal taxation, to fund the contributions.
You need to be mindful that your pension contributions made by you and/or your company should not exceed £40K in this tax year otherwise a tax charge will be triggered. The limit of £40K can also be reduced in certain circumstances, namely:
- If you have accessed a pension since 06.04.15, or have been in flexible drawdown.
- If your ‘adjusted income’ (generally speaking taxable income + company pension contributions) is more than £150K, then your annual allowance could be tapered down to as little as £10K.
If you are diagnosed with what HMRC considers ‘serious’ or ‘sever ill health’ in a tax year in which you take benefits from a pension, you may be unaffected by that tax year’s annual allowance, even if you would otherwise be caught.
With regard to the timing of taking your pension you need to talk to your pension provider.
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