During the Budget 2014 announcement, George Osborne stated that pensions will become more flexible. Therefore, from April 2015, people aged 55 and over will be able to withdraw from their pension pot, and only have to pay a marginal amount of income tax on that withdrawal. (Currently people are charged 55% tax if they withdraw the whole pot.) It is hoped that this announcement will encourage more people to begin paying into a pension. So, what is the best pension for you?
Self-Invested Personal Pension Plan (SIPP). You can transfer any other pension funds into this plan; it is ideal if you would like to make a number of investments with your money, or if you are a company owner or director.
SIPP allows you to invest in other businesses or commercial property through offering a loan or buying shares. Any financial gains you make from your investment will be tax free. The only limitation is that you cannot invest in your own business or any business you have a personal connection with, although if your company owns a leasehold or freehold, this can be invested in by your SIPP. However, there are always catches, and some SIPP providers will not allow you to invest in businesses that are actively looking for backers. You therefore need to ensure you negotiate and get the terms most suitable for you.
If you own a company it is possible to transfer a share of your business into your SIPP. However, to avoid penalty charges, you need to ensure the share value is within your pension’s annual allowance. If the value exceeds this amount, your SIPP will need to use its current funds to pay your company the excess, or it will need to borrow to fund it. With your SIPP owning a share, or all, of your business premises, your company will need to pay rent to the SIPP. However, it can claim a tax deduction for it and the rent will be tax free for your SIPP. You will only need to pay tax on the rent when you begin to withdraw from your pot, and even then, you can take 25% of the amount tax free. The SIPP is one way that allows you to significantly increase your pension pot. If you would like more advice on this scheme, or if you would like information on alternative schemes, please get in touch.