It has become important to plan your tax saving scheme since the tax year 2019-20 has started on 6th April. According to Crystal Financial Solutions, investment in pension scheme offers tax benefits and can also boost the retirement pot. To encourage to contribute more into our pensions, the government gives tax relief on what you put in – up to certain limits. If your pension contributions are coming out of your salary before tax, they won’t be counted as part of your taxable salary, so you won’t pay any tax on them.
So, you get tax relief at your highest marginal rate of income tax. Furthermore, if your pension contributions are paid out of your after-tax salary or you have separate arrangement, your pension scheme will automatically add basic-rate tax relief when you contribute. If you pay higher or additional-rate income tax, you can reclaim further tax relief through your annual self-assessment tax return.
This means a £100 pension contribution will effectively cost £80 if you pay basic-rate income tax, £60 if you pay higher-rate tax and £55 if you pay the top rate of income tax. If you’re a non-tax payer, you can still get basic-rate tax relief on contributions up to £2,880 (£3,600 including tax relief).
Furthermore, once the contributions to your pension scheme are invested, they grow largely free of taxes. If you run your own limited company, contributing to a pension can bring you significant tax advantages. Pension contributions can be treated as an allowable business expense and can be offset against your company’s corporation tax bill - up to certain limits.
For those owner managed businesses whether they are limited companies or partnerships can look to invest in a Small Self-Administered Scheme (SSAS). Usually for 12 members or less, the SSAS pension is a neat structure and is an asset that can be inherited without liability to Inheritance Tax (IHT) and, therefore, kept within the family across generations.
An SSAS provides a means of pension saving that runs alongside your limited company and allows for investment decisions to be made by the business owners. Using the funds in your SSAS, you can purchase commercial properties which can then be leased back either to your business or to a third party. If you then rent your own commercial property, the rent paid by your business to the SSAS is treated as a business expense and the rent received by the SSAS from the commercial property is not taxed. Whether you are employed, self-employed or running your own limited company, Crystal Financial Solutions we can help you build the right solution.
Please contact Jinit Shah on 0208 901 3737.