Reduce Tax Bill

Published / Last Updated on 13/08/2014

Reduce Tax Bill

Why give your money away to the 'tax man'?

Pensions are an ideal remuneration for the switched on business owner. 

Whether you pay yourself in the form of drawings, salary or dividends you are still taxed and in the case of Directors of Limited companies pay both employers and employees National Insurance Contributions on salary. 

Your business is potentially able to pay huge sums into a pension scheme for you up to the Annual Allowance (£215,000 in 2006/07 rising to £255,000 in 2010/11) on your behalf without any tax liability for you.

Your company is allowed to offset any contributions made to the pension scheme for you as a business expense.  Likewise, the contributions are not treated as a benefit in kind and therefore, you do not pay any extra tax e.g. with a company car you pay additional tax as it is benefit. 

You can get your company to pay all your pension contributions up to the maximum level allowed as set by the Inland Revenue. These contributions are also free of National Insurance Contributions.

Pensions are also generally free of Inheritance Tax provided the benefits are paid out by the trustees under discretionary powers (this means that they have a nomination as to whom they should pay benefits to but they are not legally bound to do so). 

This can generally be up to the Lifetime Allowance and you may even consider topping up your Pension Life Cover and get tax relief on your premiums as well as it paying out up to the Lifetime Allowance free from Inheritance Tax.

It is normal though that they pay any benefits out to the surviving spouse.  Please note there may be a charge in certain circumstances if you are over age 75 and have not secured your pension annuity.

For example the death benefits under a pension scheme including any life cover could be paid out to a surviving spouse.  However, the surviving spouse may then have inheritance tax liability on the second death.  There are ways to deal with the further effects of inheritance tax on the surviving spouse and indeed on second death. 

For more information on Inheritance Tax please visit our site Inheritance Adviser.com.

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