Captain Darling and the General have put rather a spoke in high earners retirement planning with the new anti-forestalling rules. Whilst this has rather upset all FTSE Directors it affects many mere mortals as well.
So lets look at an example:
Mr Smith owns his company with his wife, equal shareholding, different roles. He is a key role employee and his wife supports him. He draws £175,000 in total and Mrs Smith draws £30,000, they are simple people with no other income currently. He pays £3,000 pm plus usually £100,000 lump sum before the company year end Mrs Smith pays £300 pm with no lump sum. Company pays 28% corporation tax and all contributions come from the company. Should he pay his £100,000 now?
Well let’s assume that his previous £100,000 is ignored but his £36,000 regular is allowed. If he pays £100,000 he will likely have to pay £20,000 extra tax in January 2011. Mr Smith and their company will save:
28% Corporation tax – £28,000
12.8% Employer NI – £12,800
1% Employee NI – £ 1,000
Total £41,800
It is likely Mr Smith would need to draw a gross c£35k to pay his net £20k tax bill so it is all a bit reduced in terms of tax benefits but his tax would not be due until Jan 2011 and corporation tax would be payable 9 months after company year end so there is still a cashflow benefit. If the insurers get their way maybe Mr Smith’s last lump sum contribution will be counted and so no 20% tax bill would be due….let’s hope so.
