Savings and Investments thread

Nug · July 2024

WishIdStayedinthePub said:

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Nug said:

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valleynick66 said:

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In the last couple of years I’ve been able to put some money away in an ISA with Vanguard and I’ve been impressed with them. I currently have my pension with Standard life and get charges of about £4,000 per year. I’m pretty much invested in US trackers with a couple of others thrown in. I’ve noticed the charges in a Vanguard SIPP are much lower and I think capped at £375. Worth switching? Seems like a no brainier but wondered if anyone had any thoughts to the contrary. I’ve overall been happy with Standard Life.

Have started the process of switching my pension to Vanguard, however have hit a snag. I have my own limited company, just me as the only employee and director. I currently put £500 a month into my pension via the company which also reduces my corporation tax. Vanguard don’t allow that so would have to pay from my personal account. I’d lose the tax break but then my £500 would be increased to £600 with the 20% tax relief. Struggling to figure out if there’s much of a difference either way especially as the charges are significantly less with Vanguard.

My calculations tell me if I switch I will end up with an extra £1,140 of corporation tax for the year but would have an extra £1,200 going into my pension. Then by being with Vanguard save about £2k in fund charges.???? Am I missing something?

You a 20%, 40% or 45% tax payer?

20%

Then no, I don't think you've missed anything. Just keep an eye on your Corp Tax, you can always at the end of the tax year pay a little bit more into your Vanguard pension to offset (assuming your declared income is going to be enough).

What about NI maybe?

if you now have to pay yourself more salary from the limited company have you some increased cost there?

Unless I misunderstood I don't think Nug was intending to pay himself more (I assume he takes a lowish salary and the rest as dividends) the only difference would be tax relief on pensions v corp tax amount which he seems to have calculated as broadly neutral (£60 up!).

That is a correct assumption of how my company is set up. I’m 55 so if I can keep it going till 67 I figure just the savings on charges will add £24k over that time compared to my current pension.

I guess I’d be taking an extra £5k in dividends out over the course of the year to make the pension contributions from my personal account so that would incur tax.

Tricky one to calculate with more figures but are your corp tax calculations defo correct? 19% if profits under 50K but 25% with marginal relief if over. I'm surprised it'd be more tax efficient paying yourself rather than going into pension.

Yep my profit is below 50k. Think I may just pay it each month on the card, I do have to pay myself each month so you're right could make it part of that process.

I have a limited company set up and suspect that you are better off taking it from the company directly. I'm short one cup of tea this morning, so may have got the following wrong.

If you are taking that money as dividends, then you will be paying 8.8% income tax on that (after the initial 500 allowance). For earnings under 50k, the effective tax rate on £100 will be 1 - 0.81 x 0.912 = 26.13%? You are then only recovering 20% of that?

For the 6k you talk about, 0.5 + 5.5 x 0.81 x 0.912 = £4,563; 4.563 * 1.2 = £5,476 contribution, down just over a month's contribution.

I've always had to do it manually, but then only put the money in at the end of the tax year. As my earnings are volatile, I wait to see what I can afford to put in.

Thank you, that's really helpful.