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The Top 3 Ways to Get Tax Relief on Your Pension Contributions in 2020 - YouTube
Channel: Accounting and Tax Academy by Tony D
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if you're a small business owner
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contractor or freelancer operating
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through a limited company
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and want to clearly understand how to
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make tax efficient pension contributions
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for yourself
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or your employees then this video is for
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you
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i'm tony d'angel of the accounting and
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tax academy and today
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we're talking tax efficient pension
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contributions
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i'll explain how pension contributions
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work the thresholds
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basic mechanics and whether you should
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contribute
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through your limited company or
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personally so by definition
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a pension is simply a savings plan to
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help you for
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later life in the uk as of the date of
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this video
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the official state pensionable age is 67
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although this will increase in the
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future for sure
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you can usually withdraw money from a
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private pension plan
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from the age of 55 onwards and you can
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take 25
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of this tax free so let's say your
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pension pot is 250 000 pounds
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you can take 62 500 as a lump sum
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tax-free pension contributions are often
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made by your employer
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who will contribute directly into either
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an occupational scheme
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a private pension or something like a
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self-invested personal pension
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also known as a sip but what if you are
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a contractor freelancer or small
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business owner
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[Music]
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in this case your limited company can
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make gross pre-corporation tax
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contributions directly into a pension
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scheme
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such as a sip unlike a personal pension
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contribution there are no restrictions
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as to how much you contribute as long as
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the annual allowance is not exceeded
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this is the amount you can contribute to
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your pension scheme tax free in
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any given tax year now the annual
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allowance is currently at forty thousand
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pounds
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per tax year per individual if you
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exceed this amount you could end up
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losing tax relief on your pension
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contribution
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although you are allowed to carry
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forward unused allowances
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from the previous three years as an
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example if your limited company makes a
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gross contribution of 10 000 pounds into
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your pension fund
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in a tax year effectively you will have
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received corporation tax relief
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at 19 and any dividend tax relief
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quite often at 32.5 this could equate to
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4533 pounds
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in tax relief gosh that's nearly 50
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percent
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you can click on the icon above to get a
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download of how exactly i work this
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figure out
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but be careful with limited company
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contributions as hmrc
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could potentially disallow them if they
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deem them as being excessive
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extra care should be taken for large
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one-off contributions
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too now my advice is to talk to a
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professional before
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doing any of this and if you're not sure
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where to start click on the link below
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to head to our website and book a no
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obligation advisory corps with either
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myself personally
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or a qualified accountant on my team so
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how do you actually make a contribution
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to your pension scheme
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well the process is quite simple all you
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need to do
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is make sure you have a pension scheme
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set up like a sip
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and make the transaction from your
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business bank account
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directly to your pension scheme label
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the transaction clearly
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such as pension contribution to your
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name
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if you don't know where and how to set
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up a pension scheme a good place to
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start is hard groups lansdowne
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follow the link below in the description
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box to their pension site
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and just for the record we receive no
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commission or incentives from hargreaves
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lands down
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in fact they probably don't even know we
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are suggesting them
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i do so from my own personal experience
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and those of many happy clients of ours
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who have actually used them
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after you have been paid through your
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limited company and have paid any
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necessary taxes you can make pension
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contributions
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personally from your disposal of income
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and the tax man will
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top up your contribution so here's how
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let's say you make a 800 pounds personal
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pension contribution
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into your pension scheme the tax man
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will then top this up
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with the equivalent of a basic rate of
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tax which is 20
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so that's 200 pounds to give a total
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contribution of
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1000 pounds your pension provider will
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automatically claim this top up so you
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don't have to do anything
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and if you're a higher rate taxpayer at
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40 or above
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you will also receive further top-ups
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however this is not done automatically
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and
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has to be done through your
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self-assessment tax return
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now you have to be careful here although
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the annual allowance is currently 40 000
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pounds per annum
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you can only contribute up to 100 of
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net relevant earnings to put this simply
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if you are taking a direct salary of
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9500 pounds per annum for example then
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this becomes your
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net relevant earnings so personally you
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can only make a tax efficient pension
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contribution of
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7600 pounds and the tax man will top
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this up by twenty percent
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to make it a total of nine thousand five
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hundred pounds
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that is a hundred percent of your net
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relevant earnings
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yes you actually can but only commercial
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and not residential property
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some benefits of putting your commercial
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and buy to let properties into a pension
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include you get corporation tax relief
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on the net rental
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income property held inside a pension is
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not subject to capital gains tax
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and property held inside a pension falls
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outside of your estate for inheritance
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tax
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finally the rent your company pays into
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your pension plan
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is tax free so there is plenty of tax
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relief in placing commercial property
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into a pension
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but don't forget it could be locked into
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your pension scheme until retirement age
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only recently the uk government has
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launched the compulsory
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auto enrollment pension system mainly
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aimed at small business owners
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freelancers and contractors alike now
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for more information
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on this follow the link below in the
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description box
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if you want us to do a more
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comprehensive video on auto enrollment
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then
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drop us a comment below we'd be glad to
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hear from you
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so let's recap making cash-based pension
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contributions whether through your
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limited company or personally or placing
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commercial property
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into a pension plan attracts generous
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tax relief pension contributions are a
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great alternative to taking dividends
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for limited company owners and
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especially if you are tax conscious
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but the downside of pensions is that
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your funds will be locked away until
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retirement age so
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you need to consider this so i hope this
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video has helped you understand
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some of the basics of pension
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contributions and has taken you
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one step closer to knowing your numbers
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as always
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let me know in the comments below your
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thoughts on today's video or if there
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are any other topics you would like us
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to cover in the future
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finally be sure to like and subscribe as
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this really does help us get the content
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out there this is tony d'angel for the
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accounting and tax academy
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and once again thanks for tuning in
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you
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