Turning Company Profits into Personal Wealth.
One of the most attractive, tax efficient ways for company directors to extract profits from the company and turn them into personal wealth is to transfer these profits into a company pension. The fund in which your contributions are invested benefits from tax-free growth, unlike most other saving methods which are liable for tax. Also the dreaded pension’s levy which was effectively a tax on all our savings for the last few years finishes at the end of 2015. So from a value point of view, it’s hard to argue against pension plans.
The extent of pension tax relief available to business owners is significant: in many cases it is more tax efficient for business owners to put a portion of their company profits into a pension than to give themselves a pay rise
Most businesses are created around a few vital individuals whose technical knowledge or experience makes them a very valuable asset to the firm. An Executive Retirement Plan is an excellent way to reward a key member of your staff to encourage them to consider a long term future with your company. It can also be useful in attracting new staff, especially when you consider that in today’s competitive environment, employee benefits are becoming increasingly more important in attracting and retaining the best people.
Where directors take profit from the company as salary there will be an immediate tax liability, however those who invest in a company pension plan enjoy benefits such as:
- No benefit in kind on employer contributions
- Immediate income tax relief on AVCs and employee contributions deducted from salary
- Corporation tax relief on employer contributions in the year the contribution is made
Warning: The value of your investment may go down as well as up.