STOP Losing Money on Your Pension Today!

Working through a limited company and wondering what your pension options are and how to maximize your pension benefits in a tax efficient way. Or perhaps your salary, doctor, GP or consultant. You're working in the hospital, but you also work privately and you look into a limited company and you're curious about your private pension options. Then this video is for you. In this video, I'll walk you through everything you need to know about pensions as a limited company director. And of course this also applies to you if you're physiotherapist or any sort of healthcare professional. As long as you work through a limited company, this be beneficial. Now stay tuned as we explore how to maximize your pension benefits through a limited company.

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Now, in case you're new to the channel, Hi there, I'm Dr. Andre Grim, founder of MoneyWiseDoctor.com is a platform dedicated to providing practical financial tips to doctors and healthcare professionals. They help us make smarter financial decisions and avoid costly mistakes. At moneywisedoctor.com we provide resources, insights, blogs and connect you to specialist accountants, financial advisors, mortgage advisors, insurance advisors, I mean vetted professionals that can help you to plan your financial future. Now in today's video, we're diving into pension options for lacombe doctors and agency nurses working through a limited company. We explore what limited company director pensions are. The tax benefits, how to manage one. Practically the difference between the Options like you hear terms like SIP and sars, and of course we look at much more. Plus, I'll walk you through in the next segment, step by step, how to set it up. So let's get started straight away, if you want to grab a cup of coffee, grab a cup of wine, whatever you drink, have a seat and let's have a look. Now, quick disclaimer before we dive in. I'm not a professional financial advisor or a legal advisor, a specialist tax accountant or anything like that. Like I said, @moneywisedoctor.com we work closely with vetted accountants and financial advisors. If you like to have a free appointment with one of these experts, check the links below in the description or head over to moneywisedoctor.com to arrange a free appointment. Now, first off, why is pension planning crucial for looking doctors and agency nurses or any healthcare professional working through a limited company? This is quite a key question to understand because why is it important? Well, without an NHS pension, if you're like me and you don't have a salary job, without an NHS pension, you need a robust alternative to ensure a comfortable retirement. If you are running your own business, you have access to some unique, fantastic tax advantages that can significantly boost your retirement saving. That actually is one of the benefits of using a limited company. Now, a limited company director pension is not a special kind of pension in a way, but it's simply a private pension that you set up by yourself. But the difference here is that you can contribute to a director pension through your company and you get it as a tax expense before you even taxed. You get it as an expense before you taxed. Now, before we go any further, let's answer the key question. How much can you really pay into a tax free, you know, pension annually as a limited company director? Well, it's the same as everyone in the UK. Since 6th of April 2023, the pension allowance, annual pension allowance has been increased to £60,000 annually. This means you can pay up to £60,000 every year into your annual pension allowance. Well, it used to be 40,000. If you go above 60,000 then you have to pay some tax on that. Well, this is a game changer, especially for those who work with a limited company and are thinking about their pension and tax options. For instance, if you are paying 40% or 45% taxes, contributing to your pension allowance allows you to receive a substantial tax relief. So this money, instead of going to the government, it can grow in your pension port, supporting your financial future to help you to build that Future financial security. And you could choose to pay in from your business account or your personal account, but I prefer to pay directly from my limited company account so that the records are all clear and is also more tax efficient for me. I'll show you example of how this works. It allows you to pay your pension, your money in while you work and you withdraw when you retire. I mean it's just about the same with most pensions, but again through your limited company you pay but you get tax relief from the government on everything you pay in. And all contributions are invested into a pension fund to help your port grow over the long term. You can assess your savings from age of 55, but don't forget it's rising to 57 in 2028. Who knows how much more it is going to rise. Now let's talk about some private pension options. Unlike the NHS pension which is a defined benefit pension scheme, private pensions and other workplace pensions are usually defined contribution schemes. Of course if you like to understand more about the NHS pension, you can click on the link somewhere on the screen to watch my detailed video on the NHS pension. But let's head over to private pensions, particularly SIPP and sars. And when you hear sip, what does it mean? What are you sipping? Sip SIPP stands for Self Invested Personal Pension. It's a flexible option allowing you to manage your investments and tailor your pension plan to your needs. You can choose where to invest your money whether it's in stocks or bonds. But this flexibility can be particularly advantageous if you're knowledgeable about investments and want more control over your retirement funds. Remember, in the NHS pension you can't really decide where your money goes when sip, that's different. That's not to say SIP is better than NHS pension anyway. Now SARS or small self administered scheme is another option. It's typically used by small business owners and offers similar investment flexibility. However, SARS are more complex to set up and manage, often requiring professional administration then the preferred SIP due to its simplicity flexibility and I think it will appeal to you as well. Most doctors, narcissist healthcare professionals might find it easier to manage than a SaaS which is bit more complex. Now a SIP allows you to take charge of your investment, giving you the freedom to choose where and how it is invested. And of course if you followed my videos on investment and my previous blogs, I tend to suggest to buy a broad based diversified index fund if you don't know how to choose stocks. Most people win that way. Now whether you're a GP partner or a Consultant. Or even if you have an NHS pension, it's crucial to maximize your pension contributions. Remember you you can carry forward any unused allowances from the past three years. This means that even if you haven't maximized your contributions in previous years, you can catch up and still benefit from the tax relief. But I must stress that this is not one of those try this at home financial strategies. If you must do it, then do it properly. Make sure you're working with a qualified accountant, specialist accountant, a financial advisor, especially one that has worked with doctors and understands doctors finances, so that it can help you avoid unnecessary potholes and financial headaches or tax migraines from HM housing. Now let me give you a practical example. Suppose you're a company director and you Decide to contribute £10,000 from your business to your pension. This contribution is treated as a business expense, so it's not taxable. So that 10,000 goes out to reduce your corporation tax. And at a 25% corporation tax, this saves you £2,500 which directly benefits your pension fund. So by not paying income on that and you're not paying dividend taxes, you can significantly increase your pension saving. So you're investing in pension at the same time is saving you tax today. Now for higher rate taxpayers, the benefits are even more pronounced because they are paying at a higher rate. Imagine a £10,000 dividend might only leave you with 6,793.75. That's what you get take home after taxes. But if you're actually paying it into your pension, the whole £10,000 goes into your pension pot. And there's also some additional tax relief. Remember that dividend allowance has been reduced to £500 so actually you're paying more on dividends. Now.

Let'S assume that you want to withdraw dividends from your limited company. And this is why it's important to prioritize pension before dividend. So now if you're withdrawing dividend again, look at the years 2024, 2025 tax. Here your dividend tax rate will be based purely on what your income is. For instance, let's say you want to withdraw £10,000 dividend. So let's say £10,000 dividend and your gross salary, let's say you usually earn, I would say 36000 pounds. I know most senior doctors earn more than that, but let's say 36000 pounds. So if you calculate. Now let's say click calculate. So basically your dividend, which is 831.25 you're paying it at the basic rate. Remember, basic rate of tax is 20% for your salary or for your income, salary, income. But when it comes to dividend, it actually falls to 8.75%. So the dividend rate you pay is based on what you pay, what type of rate you pay for your salary. So it makes sense again when you go up and say, let's say for instance, you take out 10,000 in dividends, but your salary this time around is 51,000. So you're not a basic tax rate payer at 51,000. You're basically a higher tax rate payer, which is basic. So 40%, you've crushed that threshold. You're paying 40%. So your dividend will be taxed at a higher rate. It will be taxed at 33.75%. So let's click calculate again. So you're going to see this number go up. So click calculate this a huge jump. So your dividend Bill now is 3206.25. You can see that none of it is charged at the basic rate. It's all charged at the higher rate which is 33.75%. So someone ending at the basic rate is paying 8.75% for their dividend income. Remember, they pay for their salary tax at 20%, but for their dividend income is going to be charged at 8.75. But if you're a higher tax rate payer, that means you're in above 37,000. Then obviously by the time you add the personal tax allowance, you still end above 37,000. Then it's 33.75%. But since change again, let's say we're still leaving the dividend income at 10,000. But this time around your gross salary is 126,000. I know, I know. Let's just assume that this gross salary comes from your work as a consultant in the hospital or maybe a gp. In addition to that you have some private income. Maybe you have income from your rental property. If you add all of that, let's just say, or let's just. To make it simple, let's just assume you get 126000 salary. By this point, you've already crossed into the 60 tax threshold that we talk about. I've done that in a separate video and a separate blog. You can look in the link to understand how doctors can avoid the 60% tax trap. But just for dividend calculation, your dividends now will be taxed at 39.35%. So if again hit calculate and you see the dividends goes up slightly is now 3738.25. Again none of it is charged at the basic rate of 8.75%. None of it is charged at the higher rate of 33.75% is our charge at the additional rate which is 39.35%. So that's how your dividend rate could be impacted by what your salary is. Now let's assume that you use a limited company and you've already paid out £60,000 or whatever you can into your pension. But instead of taking a salary of 126,000, you decide to take a salary of 12, 570. So remember, 12, 570 is sort of your personal tax allowance. Anybody that ends 12, 570 doesn't have to pay tax on it. So if you take 12570 you want to take the rest in dividend. Let's just stick with the dividends at £10,000 because that makes calculation easy. So if you calculate it 12, 570, your dividend rate falls again. So let's say calculate 12, 570 it falls to 831 because you are charged at the basic rate.

Again.

So that's how to work those things out. But of course you have to pay attention to what is your tax band. Are you a basic tax rate payer or are you higher tax rate payer or are you an additional tax rate payer? You pay attention to those things. Understanding where the threshold is. Again, if you look at the screen you'll see the tables from HMRC website that shows where you fall in.

Now thank you for watching and I hope this video has shed some light on how to maximize your pension benefits as a local doctor or agency nurse working through a limited company. If you have any questions or comments, pop them in the comment section below and I'll do my best to answer them. And if I don't particularly know the answers, I'll bring one of our specialists, accountants or advisors to come and answer them here on this channel. So pop your questions in the channel below. If you found the video helpful, feel free to subscribe and share it with your colleagues on my offso benefit. And if you like to download a step by step guide that will help you to claim tax relief on professional expenses, check the links in the description and get it free. Alright, see you next time. Bye bye.