My business is my pension – or is it?

pension planning

Retaining profit in a business makes good sense, especially in tough trading conditions, but keeping too much in the bank can put the businesses cash at risk if things go wrong.

My business is my pension – or is it?

Following some excellent trading years, the three owners/directors wish to draw retained profits from the business in a tax efficient manner, as they are concerned that they have too much cash. Furthermore, although they saw the businesses eventual sale as part of their retirement planning, they didn’t wish to rely on this.

Taking additional income from the business by way of salary or dividend would have resulted in more tax to pay and as they also wanted to fund for retirement outside of the business, they considered a pension plan as a suitable way forward. However, they realised that the complexity of pension planning meant they would need advice. After the initial fact finding audit, we were able to ascertain their requirements and affordability. It was of course essential for them to retain adequate cash in the business, but this still left them with circa £400,000 to extract.

Our recommendation was to implement a Directors Pension scheme and by using maximum pension funding and carried forward allowances we were able to extract £399,000 tax free. This reduced the taxable gain for the company within the trading year. We also consolidated previous individual pension plans into the new Directors plan, enabling them to utilise the services of a bespoke Discretionary Fund Manager* to manage their pooled funds. This reduced cost and improved risk management.

The Directors 5 year plan was to continue maximum funding in order to purchase a new trading premises within the pension scheme as tax efficiently as possible.

Outcome

Bespoke pension advice will allow the Directors to achieve their goals of extracting and protecting capital, funding for retirement and their new goal of purchasing their own premises through the pension.

* click here for further information on our Central Investment Proposition

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Generation Wealth Management is listed in the SIFA Directory of Professional Financial Advisers which is endorsed by the Law Society.