Since the change to Dividend tax came in you may be wondering if there are more tax efficient ways of drawing funds from your company. Read more for an idea that can save tax each year.
For those of you with excess profits not needed as working capital or simply as a safety buffer, then this may be a viable option. Adding to your employer pension pot using your excess profit is usually tax deductible. This allows you to save tax on the contributions, retain an investment increasing in value and enjoy those extra pounds when your income level is lower and any tax paid reduced.
Your pension contributions are paid into a ‘Small Self Administered Scheme’ (SSAS) which allows you to hold certain assets including commercial property. This can be very helpful for businesses who wish to purchase a commercial property, or, own a property already.
If your business currently owns its own commercial premises you can use your pension contributions to buy it as an investment for your pension trust. Be aware that capital gains tax may arise on the sale if the property has increased in value since it was purchased. Alternatively, if you do not yet own a business property your pension contributions are a way to save for this opportunity.
It is possible for the pension trust to borrow a limited amount to fund the purchase of the property if your accumulated contributions are not quite sufficient.
When the property is ultimately sold there is usually no capital gains tax payable.
And, having purchased the property, if your business occupies the property, you will then be able to rent the property back to the business obtaining tax relief for rental costs against business income.
Meanwhile any rent paid into the pension fund is tax free as a return on investment.
You will pay income tax when you withdraw your pension as normal, however your total income is likely to be lower and so your tax liability less than whilst you are working.
Please seek further advice on this type of Dividend alternative. We are experienced tax advisors and we’re happy to discuss any of the above in further detail. You can reach us on: 01273 882200.
All details above were correct at the time of publishing - for more up to date information please get in touch .
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