What to do with business account lump sum. Additional pension?

[MeathCommute]

I am in the enviable position of having 70k in my business account. If I take the money out, I'll pay 35k in tax. My accountant advised me to put it into a pension fund, but I have plenty of pension provision already. Is there a way I could put this money into an ARF that I can take out tax free fairly soon? I am 53 this week. One other thing to note is that I have an appointment lined up with a pension advisor for October, as I will be hit with a revenue surcharge if I don't move significant money out of the business, by the end of the year. I don't want a pension advisor to advice a defined contribution pension, that could end up yielding nothing.
Any advice would be much appreciated

 

[Conan]

No.
An ARF is a post retirement vehicle. If you invest it in a Company Pension, it (presumably ) will add to your existing values. You can draw down pension values from age 60 -
- part as a lump sum and
- the balance used to invest in an ARF or to buy an Annuity.
Your options are to either draws the money down (and pay the tax) or invest into a defined contribution pension to use later when you retire.

 

[Oisin19]

You mention a revenue surcharge? Is this the close company surcharge? If so you won't get relief from this surcharge by putting money into a pension and need to talk to a tax advisor instead of a pension advisor.

Another thing to note. Have you considered how you are going to exit the business? There are reliefs on exit such as retirement relief or entrepreneur relief that may be more beneficial for you. These will involve stockpiling cash in the business till exit.

Unfortunately if you want to get access to the funds in the near future you will have to take them out as salary or dividend like Conan mentioned above.

You mention that you have plenty of pension already. Is all of this pension from this company or is some of it from a previous life?

 

[MeathCommute]

You mention a revenue surcharge? Is this the close company surcharge? If so you won't get relief from this surcharge by putting money into a pension and need to talk to a tax advisor instead of a pension advisor.

Another thing to note. Have you considered how you are going to exit the business? There are reliefs on exit such as retirement relief or entrepreneur relief that may be more beneficial for you. These will involve stockpiling cash in the business till exit.

Unfortunately if you want to get access to the funds in the near future you will have to take them out as salary or dividend like Conan mentioned above.

You mention that you have plenty of pension already. Is all of this pension from this company or is some of it from a previous life?

Many thanks for the response. I worked for a major bank for 30 years, as a permanent employee. I build up a half final salary pension. Then I took redundancy. I am now contracting to the same bank for the last three years, as a daily rate contractor, through a limited company. I can't do AVCs to the "preserved" pension. It's not allowed. There is an undisbursed income surcharge that the Revenue levy if you don't get the balance of the business account down e.g. draw it down and pay the tax, or put it in a pension pot. That is why I have to do something. I am not winding up the company just yet, until I am no longer required for contracting to the bank.

 

[thumbelina]

You mention a revenue surcharge? Is this the close company surcharge? If so you won't get relief from this surcharge by putting money into a pension and need to talk to a tax advisor instead of a pension advisor.

I don't think that is correct, can one of the tax gurus comment. Pension contributions can be made out of company profits before the end of the company year and don't attract the close company surcharge.

 

[Oisin19]

I read it that the surcharge had already been calculated and was due based on the previous years profits.

Pension contributions made now will reduce current profits and thus subsequent surcharges.

 

[Oisin19]

There is an undisbursed income surcharge that the Revenue levy if you don't get the balance of the business account down e.g. draw it down and pay the tax, or put it in a pension pot. That is why I have to do something.

As you have noted you have a few options as follows:

1) Drawdown the funds - tax at circa 50% now;
2) Put into pension - get a CT deduction at circa 20% now but pay tax on the pension at a later date which could be at the 50% rates if the preserved pension is big enough which it sounds like it maybe. You should get a capital value of your existing Defined Benefit pension to see if putting more funds towards pension is optimal; and
3) Leave in company and pay CT at circa 20% on the funds now and CGT on exit which might be got at the 10% rate.

I think you have to bottom out number 2 & 3 to see which satisfy your financial need and thus which is more optimal for you.

Is there an early retirement option with your existing pension? This could give you a tax free lump sum now but you will reduce your pension as you are getting it before retirement age.

 

[MeathCommute]

Is there an early retirement option with your existing pension? This could give you a tax free lump sum now but you will reduce your pension as you are getting it before retirement age.

I can't touch it till 60. It's a preserved pension. Incidentally, Two years ago, I was offered a transfer value to walk away with but I didn't proceed with it, as it looked to me like they were selling me short

 

[MeathCommute]

I read it that the surcharge had already been calculated and was due based on the previous years profits.

Pension contributions made now will reduce current profits and thus subsequent surcharges.

My accountant says that the surcharge will kick in if I don't take money out of the account by the end of 2019

 

[MeathCommute]

Just jumping back in here again, if I may. Is it possible to put the profit in the business into a low risk pension. Basically what I am asking is, is it possible to put the money in to a low risk pension, availing of the tax relief, and take the tax free money out at 60, paying the tax on it then? I don't need additional pension really, and I am afraid of investing the money in a pension, and losing it all, or having a shyster who advises me badly, and I get wiped out

 

[thumbelina]

That should be possible alright, in terms of the risk you would just pick the appropriate fund within the pension. You could put it into cash within the pension even, the pension providers would have the equivalent of sticking it in the bank (and obviously minimal if any interest earned).

The advisors on here could give you a steer on getting a pension setup for a fixed fee, should be possible.