I am thinking of opening a SIPP and I have a question about the most tax efficient way of funding it.
I would want to make regular, say monthly contributions.
Here is my situation:
1- I am the director of my UK Ltd company but do not draw any salary or dividends from it.
2- I am as well self employed with income that puts me squarely in the 40% tax bracket
My self-employment income affords me and my family a comfortable lifestyle and I could contribute to a SIPP, but it won’t be much, and I would like to do more but in the most tax efficient way.
I thought of 2 ways of going about this:
1- My Ltd company could contribute to my personal SIPP (as an employer). It would have enough money to do so. Let’s say for example, 10 K/year.
The Ltd. would not pay the corp. tax on those 10 K.
2- I thought what if the Ltd. company pays me the 10 K as a salary. It would not affect my tax bracket as I am already above the 40% threshold.
The Ltd would not pay tax as it’s a 10 K salary, probably a bit of NIC…
Now personally I would take the 10 K and contribute them to my SIPP. Would I be eligible for the extra tax relief since I am in the 40% bracket? In which case that is much more beneficial in terms of tax efficiency.
Just to clarify, my aim here would be to fund the SIPP and in the same time draw money from the company without me needing the proceeds to live off and get a 40% boost to my SIPP from day one…
would the second way be more tax beneficial to me or am I missing something?
Thank you in advance for your help.