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Employer Pension Contribution

Employer Pension Contribution

A client who operates an owner-managed limited company intends to retire in a few months.

He is planning to make an employer pension contribution to his personal pension of £100k before the company ceases in order to obtain Corporation Tax relief.  He has over £50k pension annual allowance to be carried forward from the previous 3 years & has made no contributions in the current tax year, so this should not generate a tax charge.

Once the company ceases trading, the client intends to commence taking his pension & receive his 25% tax free lump sum.  Would this be frowned upon by HMRC - i.e. a large contribution receiving tax relief is then partially taken out in a tax free environment within the same tax year? 

I haven't been able to find anything from HMRC that states there would be a problem, but thought I'd ask to see if anyone knows of HMRC's stance on this matter.

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11th May 2012 15:02

No

HMRC don't really have a choice, as it can be done. I have several client's who have done this with no problems, but this has been done in line advise given by their IFA. 

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11th May 2012 15:11

Wholly and exclusively

HMRC can argue in these circumstances that the payment isn't wholly and exclusively for the purposes of the company's trade (See BIM37740).  I'd be surprised though for a £100K payment, unless it's large in relation to the company's annual profitability.

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