I have been looking up information on this ER scheme, lots of useful threads on it on AAM, but i didn’t find one, which examines scenarios, for the most tax efficient method, of a director who is planning for 10 years time, when they hope to retire in early 60’s.
The scenarios i am referring to, are the best approach regarding, how much Salary to take, and also how much Director pension payments to make(within the limits), both of which impacts the Entrepreneur Relief available, when it eventually comes to retirement.
A specific example is a limited company with contracted consultancy of 120k per year, Salary requirements of 40k mimimum. Almost negligible expenses, as can be done from home. That leaves a large retained annual profit of roughly 75k, after say 5k annual expenses. The question here is, how much to pay out in Directors Pension, and how much to leave retained in the company, which would be subject to CT of 19% as its Professional Services.
In this scenario, the Director already has 400k in PRB’s, so does it makes sense to bring that up to at least 800k over 10 years, and maximise the 25% tax free lump sum, and also provides for about 21k based on 4% imputation of the balance, which they would be happy with as they have other income sources as well.
Or, does it make more sense to have a lower pension payment, leading to a higher ER relief, which is then subject to 10% at retirement.
Another ER question, is, can the company invest the retained profits, rather than just leaving the cash on deposit.
The scenarios i am referring to, are the best approach regarding, how much Salary to take, and also how much Director pension payments to make(within the limits), both of which impacts the Entrepreneur Relief available, when it eventually comes to retirement.
A specific example is a limited company with contracted consultancy of 120k per year, Salary requirements of 40k mimimum. Almost negligible expenses, as can be done from home. That leaves a large retained annual profit of roughly 75k, after say 5k annual expenses. The question here is, how much to pay out in Directors Pension, and how much to leave retained in the company, which would be subject to CT of 19% as its Professional Services.
In this scenario, the Director already has 400k in PRB’s, so does it makes sense to bring that up to at least 800k over 10 years, and maximise the 25% tax free lump sum, and also provides for about 21k based on 4% imputation of the balance, which they would be happy with as they have other income sources as well.
Or, does it make more sense to have a lower pension payment, leading to a higher ER relief, which is then subject to 10% at retirement.
Another ER question, is, can the company invest the retained profits, rather than just leaving the cash on deposit.
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