Corporation tax deductions for pensions are not restricted to limits

The issue

A limited company is able to make larger pension contributions than the director’s contribution allowance of £40K per year. Small self-administered schemes (SSASs) are able to set up a “general unallocated fund.” This fund can provide for future contributions that will be allocated at a later date to the scheme’s members (although future years’ allocations will need to be referenced to members’ earnings).

Contributions can be made by either cash or in-specie contributions of assets (such as property) – although HMRC have currently put a hold on in-specie contributions whilst it reviews how they are processed. These contributions will generally be allowable for corporation tax purposes.

The maximum contribution that can be made in this way is £500,000 in any year. Any losses which are created can be carried back to the previous year or carried forward in line with normal loss rules.

 

Commentary

Therefore the pension rules are not as restrictive as many people think. Although there are restrictions on allocations to scheme members, the scope for corporation tax deductions are still quite generous. This point is particularly relevant now given that the corporation tax rate is set to drop from 20% to 17% and possibly lower over the next few years.

 

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