One of the changes announced in the June budget seems not to have crossed many business owners’ radar and yet I think it potentially has a substantial impact on how they might be able to reduce tax costs now and in the future.
You may have spotted the change to the tax relief on contributions into pensions being reduced from £255,000 to £50,000 per annum for pensions with a pension input period ending after 5th April 2011. You might have been excused for thinking that it’s an irrelevance as you were never planning to invest anywhere near the £255,000 that currently attracts tax relief.
But…
… what if you are planning to buy business property? Currently this can be done very cost effectively within a pension.
…what if your business already owns a property and you wish to actually transfer this property (or part of it) into a pension as a deemed pension contribution. Under the new rules this may take you over the annual limit.
…what if you need to make a large contribution to obtain the tax relief and then borrow money back from the pension? A limited company can do this, possibly to assist cash flow and at the same time interest is paid back to the pension fund rather than the bank.
…what about directors of companies making substantial profits who want to pay these profits into their pension and save up to 50% in tax?
You don’t have to be a Rothschild, or a Branson, to be affected by changes that at a first glance might look as though they only impact on the very wealthy. If any of the scenarios above apply to your business you should be discussing your situation with your financial advisor – or with us.
There is still time to take advantage of the old pension rules but you need to act now.
Andy Parker
Chartered Accountant and Chartered Financial Planner
