Pension contribution

Pension contribution

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The client intend to buy the commercial property through his pension fund. He is the director /shareholder of the company. Both the company and he make the pension contribution.

If the fund is not sufficient to purchase the property outright and also the annual allowance has been used up, can the company make a loan to the pension fund rather than make contribution or can the client make part payment through his personal account? 

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Man of Kent
By Kent accountant
29th Oct 2016 12:46

How much is the fund likely to be short?
The fact that the annual allowance has been fully utilised does not necessarily prevent the limited company from making further contributions.

See
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46030

and

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46035

Thanks (2)
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By Johntax
29th Oct 2016 13:36

Let us say,

If the fund need extra £500,000, can the company make a loan to the fund to make the purchase. Yes, the company can make the further pension contribution, but if savings in pension pots go above the annual allowance, the individual will pay tax.

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Man of Kent
By Kent accountant
29th Oct 2016 14:26

Which annual allowance are you talking about - the £40k individual annual allowance? This doesn't prevent the limited company making further contributions subject to previously mentioned BIMs.

A loan to the director's own pension scheme is likely to be considered a loan to a connected person - section 252 CA2006.

http://www.legislation.gov.uk/ukpga/2006/46/section/252

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By Adam12345
29th Oct 2016 15:04

And any employer contributions DO eat into your annual allowance of £40k.

Yes, effectively, this will be treated as a loan to the director as the pension is for the benefit of the director, and with the new tax rates on directors loans, if the loan was £500k, the tax payable on that loan would be £500k x 32.5%, but refundable when repaid - assuming this is a close company. This will be on top of the annual allowance charge.

Or you could treat this as a employer contribution, but that will create a massive annual allowance charge on the director.

So the answer is the company can, but however you do it, there will be a significant amount of tax to pay.

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Replying to Adam12345:
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By Johntax
29th Oct 2016 15:12

Excellent!

Could you elaborate annual allowance charge on the director a bit?

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Replying to Johntax:
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By Accountant A
29th Oct 2016 15:58

http://www.sppa.gov.uk/index.php?option=com_content&view=article&id=848&...

6. What is the Annual Allowance Charge?

The Annual Allowance Charge is a tax charge on the individual. It arises where the total pension input amount for an individual, in Pension Input Period (PIP) which end in the tax year concerned, exceeds the amount of the annual allowance for that tax year and any unused annual allowance from the previous three years.

When the total pension input amount exceeds the annual allowance, the annual allowance charge will be levied on the excess.

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By Johntax
30th Oct 2016 00:07

Can the director make the payment £500,000 personally not through pension fund? If so, how will this affect tax efficiency of commercial property purchase with pension fund?

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paddle steamer
By DJKL
30th Oct 2016 12:54

Ignoring the tax issues, surely re pension scheme borrowing step one is to determine the limits on its ability to borrow.

I am no expert re pensions but something niggles that some funds may only borrow 50% of their existing funds held, so step one is surely checking this with the IFA involved.

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