Most people will be aware of the tax incentives around paying into a pension such as income tax relief on contributions, tax free growth on the fund and a tax-free lump sum and replacement income in retirement. Many pension providers will bring a shutter down on pension contributions post age 75 as tax relief is no longer available for individuals. In most instances this is not an issue as many people will be enjoying full retirement by this time.
However, for limited company business owners who may well continue to be involved with their company post age 75 this can be somewhat frustrating. Holding a high level of profits within a limited company and with tax efficient options of extracting profits via salary and dividends being less generous than it once was, making an employer sponsored pension contribution may well be attractive. The allowance for contributions in the new tax year, post 6th April 2023, can be as generous as £60,000. In addition, there is the potential to look back over previous tax years and drag forward unused allowances, a possible total payment into pension of £180,000. Most, although not all, pension funds will be outside of an Estate for inheritance tax purposes too.
Fortunately, there are a select number of providers who are prepared to allow contributions from an employer post age 75. This means that profits can be extracted from a limited company without incurring employer National Insurance contributions, can complement both dividend and salary strategies with the pension contribution being offset as a business expense. You can look to build up your pension fund post age 75 and equally boost your tax-free cash allowance. These benefits coupled with the already generous rules around passing on pension benefits (a legacy) and the changes to the overall limits around accessing pensions could make this an option worth exploring.
It is important that any contributions by an employer satisfy the “wholly and exclusively” for the purposes of running the business test (check with your accountant). We would consider that this aspect of financial planning requires full advice.
If you would like to find out more around this topic or your wider financial planning, do get in contact.
Note: The value of your investments (and any income from them) can down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement. The Financial Conduct Authority do not regulate tax planning.
