Robert, aged 47, is the sole director and shareholder of XYZ Ltd. XYZ Ltd remunerate Robert with a PAYE salary of £12,500, and dividends of £100,000. In the financial year ending 30/11/2020, XYZ Ltd has profit of £200,000 and a cash balance of £250,000. As the company’s overheads are low comparative to turnover, XYZ Ltd tends to accrue cash within the business that is not earmarked for business expenses.
Robert would like to exit the business at age 57 to enjoy a long retirement and, to date, has not made pension contributions to achieve this objective. He does have an old workplace pension that has not been contributed to since he left his employed role and set up the business in March 2015.
In his own words, Robert has ‘basic investment knowledge’ and some previous investment experience with shares he owns, which are a relatively low percentage of his overall wealth. As it is very important to Robert that he exits the business at 57, he would like advice regarding the investment strategy of his pension and a regular review to ensure risks are mitigated and opportunities are taken over the next 10 years. He would also like advice to continue into retirement, as he does not want to spend time worrying about the suitability of his investments.
To start accumulating savings and achieve his objective, Robert is happy to invest £100,000 from the cash held within XYZ Ltd. Robert’s pension annual allowance is £40,000 for the current tax 2020/21. However, as he has an existing pension, and he is currently making no pension contributions and has not contributed in any of the three previous tax years he can carry forward his unused annual allowances from the 2017/18, 2018/19 and 2019/20 tax years. Therefore, his total annual allowance, including carry forward, is £160,000. By making an employer pension contribution of £100,000, the profit in the current financial year will be reduced from £200,000 to £100,000, saving the company £19,000 in corporation tax due.
If you would like to review your carry forward position and understand how this could help you achieve your future aims, please get in touch to arrange an initial consultation.
The information contained in this case study is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable pension strategy, you should seek independent financial advice before embarking on any course of action.
The Financial Conduct authority does not regulate taxation advice.
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.
Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.