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Why UK contractors should set up a pension

by 1st Contact | Jan 18, 2016
  • Whether you are a pay as you earn (PAYE) contractor or you work through a limited company outside of IR35, you should be investing in some form of pension savings. Our sister company, Sable Wealth can help you pick the right pension.
    Pension savings

    Investing in a pension fund isn’t just a smart move for the future, it can also provide you and your business with significant benefits in the short term.

    1. Pay less tax

    This applies to all contractors. Whether you pay all or only part of your profits into a pension fund, you can receive some serious tax breaks.

    To do this, your funds must be transferred directly into a pension fund. Once you’ve put the system in place, those profits will not be subject to personal income tax or national insurance deduction. On top of this, limited companies don’t have to pay corporation tax on pension funds.

    If you fall within IR35, you’ll get significant tax relief by investing your profits into a pension fund.

    2. Paying into a pension as a company is more efficient

    There is no relation between salary and the size of company pension contribution. As long as you can cover all of your day to day costs, you can invest as much as you want into your company’s pension fund (subject to available allowances).

    3. You can invest large sums of money

    Contractors may invest up to £40,000 each year without any additional tax implications. There is, however, a lifetime allowance of £1 million.

    4. It is now possible to draw down lump sums

    A recent change in the pension rules means that contractors are not restricted to living off an annuity in retirement. You will now be allowed to draw lump sums out of your pension fund after you turn 55.

    5. Your pension savings can be passed on to your heirs

    If you die before you turn 75, your pension fund can be passed on to your family, free of tax. If you die after 75, a tax liability may be payable – depending on whether the income is paid in instalments or whether it is passed on as a lump sum.

    6. Pension funds are protected from insolvency

    Private pension funds are carefully protected by law. If your business or SME is liquidated, your pension savings will be safe from creditors.

    7. You don’t have to invest in equities

    The law allows UK contractors to keep their pension savings in cash, similar to an ISA.

    Choosing the right pension provider

    As financial advisers, Sable Wealth can help you choose the right pension provider. This is an extremely important decision and should never be made without expert advice. Sable advises all of their clients according to their particular circumstances and wishes.

    If you are self-employed and haven’t yet set up a UK pension fund give Sable Wealth a call on 0207 759 7519. Alternatively you can leave your details here and they’ll get back to you.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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