Case studies
Tax & Retirement Planning
Directors Alan and Susan were concerned about how higher-rate taxes and outstanding loans on their commercial and personal properties would affect their retirement.
Alan and Susan are aged 67 and 52. They are directors of their own limited company. Between them they hold a variety of assets, including a large commercial property (subject to a commercial mortgage), savings and investments in the region of £150,000 and a Self-Invested Personal Pension (SIPP) which owns the building from which their business operates.
They own their main residence, which is subject to a small mortgage of £21,000.
They were concerned about the level of personal and corporate taxes that they are paying, with Alan paying a fair amount of higher-rate tax.
The commercial property is subject to a £170,000 loan. They wanted to understand how they could repay this loan and the small mortgage on their main residence as quickly as possible.
They wanted to understand when they could afford to retire.
We completed a budget planner and cashflow model to establish the level of income that Alan and Susan would need in retirement. We analysed their assets, both personal and business, to work out a strategy for repaying debts as quickly as possible. We also met with their company accountant, ahead of their trading year end, to discuss and explore tax planning opportunities; ideas that we had put to the accountant, rather than the other way around!
As a result, we made the following recommendations:
- Repay £45,000 to their company. This represented notional dividends that Alan and Susan had been paid in the current trading period. This cleared their director’s loan accounts (they didn’t need to be drawing this income from the company, hence the suggestion to repay the money and not suffer personal taxation).
- Contribute a company pension of £45k into Alan’s SIPP. This created additional liquidity within Alan’s SIPP which allowed him to take a tax-free lump sum of £90,000.
- Going forward, we advised that their company pension contributions should predominantly be made in place of dividends, to boost pension pots ahead of full retirement in three years.
The tax-free cash from Alan’s SIPP, when added to existing savings, was sufficient enough to repay both the commercial loan and mortgage. They are now debt free.
We saved them £14,625 in personal taxation and £8,550 in corporation tax in year one alone. Thanks to the plan we put together, similar savings can be achieved over the next three years.
Alan and Susan can afford to retire immediately, if they wish to do so. Now that the commercial loan is re-paid, the income generated by the property is more than sufficient to cover their lifestyle costs.
Alan and Susan are continuing to work, but because they want to rather than because they have to.
