Best Way to Extract Business Profit

Published / Last Updated on 17/06/2015

Best Way to Extract Business Profit

 E.g.  £30,000 PROFIT - Dividend v Pension.  We think pension is usually better than dividend now across all scenarios

£30000 Paid to You

Dividend – paid out to you as net dividend

Pension - £30000 Paid into Pension

Corporation Tax Payable 20%

£6000

NIL

Net Payment to you

£24,000

£30,000

Employers National

Insurance

NIL

NIL

Employees National Insurance

NIL

NIL

Gross Dividend figure included for Tax Return

£26,666  (as a 10% tax credit had been added)

NIL

Money Now in Your Name BRT

£24,000  - no further tax liability if a Basic Rate Tax Payer

 

In Your Pocket

£24,000

£30,000 in pension fund

 

But if drawdown – new pension rules

£30,000 X 25% Tax Free Cash = ££7500

£22,500 X 20% Income Tax = £4500 Tax.  Net Left = £18000

 

In Your Pocket £7500 + £18000 = £25,500

Money Now in Your Name HRT

32.5% but 10% deemed paid

so 22.5% Tax Due £26666 X 22.5% = £5999

 

In Your Pocket

£24,000 - £5,999 = £18001

£30,000 in pension fund

 

But if drawdown – new pension rules

£30,000 X 25% Tax Free Cash = £7500

£22,500 X 40% Income Tax = £9000 Tax.

Net Left = £18000

 

In Your Pocket £7,500 + £18,000 = £25,500

Money Now in Your Name ART

37.5% but 10% deemed paid

so 27.5% Tax Due £26666 X 27.5% = £7333

 

In Your Pocket

£24,000 - £7,333 = £16,667

£30,000 in pension fund

 

But if drawdown – new pension rules

£30,000 X 25% Tax Free Cash = £7500

£22,500 X 45% Income Tax = £10,125 Tax.

Net Left = £12375

 

In Your Pocket £7,500 + £12,375 = £19,875

 

 

 

Tax on Death E.g. Basic Rate Tax Payer

Inheritance Tax 40% =

£24,000 X 40% = £9,600

 

Net Paid to Loved Ones £14,400

(nearly half of starting £30,000 gone in tax)

Untouched Pension Fund =

£30,000 paid to loved ones

 

Drawdown Pension Balance

Death before Age 75 = NIL TAX

Death After Age 75 = 45% then dropping to their income tax rate as they draw

 

Could be 100% of £30,000 never gets taxed

 

Tax on Death E.g. Higher Rate Tax Payer

Inheritance Tax 40% =

£24,000 X 40% = £9,600

 

Net Paid to Loved Ones £14,400

(nearly half of starting £30,000 gone in tax)

Untouched Pension Fund =

£30,000 paid to loved ones

 

Drawdown Pension Balance

Death before Age 75 = NIL TAX

Death After Age 75 = 45% then dropping to their income tax rate as they draw

 

Could be 100% of £30,000 never gets taxed

 

Tax on Death E.g. Additional Rate Tax Payer

Inheritance Tax 40% =

£24,000 X 40% = £9,600

 

Net Paid to Loved Ones £14,400

(nearly half of starting £30,000 gone in tax)

Untouched Pension Fund =

£30,000 paid to loved ones

 

Drawdown Pension Balance

Death before Age 75 = NIL TAX

Death After Age 75 = 45% then dropping to their income tax rate as they draw

 

Could be 100% of £30,000 never gets taxed

 

 

 

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