Picking A Pension & Making The Most Of It

Google reviews
May 24, 2018
n

Being a contractor or freelancer, it’s important to have funds available in your bank account, just in case. However, that doesn’t mean you can’t make other types of savings, such as pensions.

The day you finally get to take a dip from the pot may be far away, but the future is important. Although being self-employed means you can’t benefit from employer contributions, there are numerous ways to economise your pension savings.

Benefit from the annual allowance and tax relief

Did you know that you can place £40,000 into your pension each year, free from income tax? This is the ‘annual allowance’, and it doesn’t need to be made up of your earnings. For example, you can contribute money from selling a high-value asset or any savings in your bank account.

You can claim tax relief as well. For example, if you pay tax at a basic rate, then for every £100 you pay, HMRC contributes a further £25. What’s more, if you haven’t taken advantage of the annual allowance and tax relief in previous years, you can carry the unused allowances for the last three years over.

Make contributions via your spouse

If your spouse has a role within your company, and is therefore on the payroll, then up to 100% of their salary can be paid into a pension scheme.

In order to produce the maximum tax relief, it’s best to pay contributions on behalf of whoever earns the most. It’s also necessary to ensure that your spouse’s role is actually a job they are paid for – if they’re not truly doing work for your business, then HMRC may prosecute.

Place business premises into your pension

If you ever need to buy business premises, then these can be purchased via a pension scheme. In order to do this, there must be sufficient funds in a self-invested personal pension (SIPP). If the amount required isn’t there, then you borrow up to 50% of its net value, as well as using money from other pensions.

Once bought, you’ll need to pay market-value rent to the SIPP – undervaluing it can result in tax bills of 55%. Therefore, ensure it’s accurately estimated, and you’ll benefit from the tax efficiency.

You’ll contribute sizeable pension payments, and won’t be required to pay corporation, income or capital gains tax.

Withdraw for tax relief

Over 55s can withdraw funds from their pension, though you may not see the point if your retirement plans are in the distant future. However, those in the higher or additional bands can enjoy tax relief when withdrawing pension money; with 75% being tax-free.

A higher tax rate payer, ordinarily, would be required to pay 40% of £1200 into a pension, leaving them with £720. However, if they take it out, they’ll only pay £300, offering them a higher amount of £900. It’s worth noting that once you start the process of taking funds out of your pension, the annual allowance is reduced to £10,000.

Use a low-cost pension

There are multiple low-cost pension schemes available, such as Nest which is backed by the government. They only charge 0.3% per year to members, compared to a typical scheme’s 1% fee. Whichever pension you choose, you’ll need to ensure you make the most of it by being tax efficient.

Working out the best ways to minimise your tax bill isn’t easy for those who aren’t accountancy experts. That’s where Bright Ideas can help. We deal with the calculations, so you don’t waste time figuring out the numbers. To book a FREE consultation with our experts, contact us today on 0161 669 4221 or info@biaccountancy.com.

OSV4W10

Resources

Recent Articles

650,000 extra pensioners pay tax for the first time this month

650,000 extra pensioners pay tax for the first time this month

Around 650,000 pensioners are facing the prospect of paying tax on their pensions for the first time from this month thanks to a big boost to the State Pension from April 6, and frozen tax bands that will drag them into the tax net, according to calculations from...

The end of the P11D is expected in 2026

The end of the P11D is expected in 2026

The P11D form which has been used to process ‘benefits-in-kind’ such as loans for season tickets and company cars will no longer be used after April 2026, as HMRC will ask businesses to deal with all these benefits through the payroll instead. HMRC announced earlier...

Cryptocurrency gains must be reported on self-assessments

Cryptocurrency gains must be reported on self-assessments

If you hold or invest in cryptocurrency, or even if your employer pays you in a cryptocurrency such as Bitcoin, you may need to declare this on your self-assessment form. For anyone who didn’t in the 2022/23 form which should have been filed before January 31, it...

Ready to join us?

Whether you’re a contractor, freelancer, or small business, Bright Ideas can help remove the burden of time-consuming and complex finances. We’ll draw on our years of knowledge and experience earned helping sole traders just like you.

When you choose us, you’ll be assigned a dedicated Account Manager who’ll provide one-on-one support that’s customised to your business. Communication is key, so we’ll always answer your questions or requests as soon as we can. In fact, we offer a same-day response guarantee for emails and calls received before 3pm.

Contact us to get started

Give us a call us or send an email today!

Looking to switch accountants?
We make the transition simple.

Does your current accountant give 1-to-1 support? Are they fast and thorough?
Slap-dash services hold businesses back, so try our experts instead.

Move to an accountancy service that goes the extra mile…

Start the conversation

Let’s make your finances Brighter

Call us Monday to Friday 9am - 5pm

0161 669 4221

Request a call back