How to have your cake and eat it!

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Published: 23 Sep 2015

Benefits of increasing pension contributions prior to company sale

There are not many occasions in life when you can ‘have your cake and eat it’ and even fewer when it comes to business! But when you can what a great feeling it is!

Take for instance the owner manager. He can ‘ramp-up’ the company pension contributions prior to sale of the company without affecting the sale price of his company.

The company should be earning profits against which the pension contributions can be used to reduce the corporation tax bill. In the current tax year, it is possible to claim up to a maximum of £180,000 of unused pension contributions for each director or employee, provided the pension scheme was in existence for the current and previous three years and that a sufficient salary was paid in those years to match.

Also, the flexibility on drawdown makes this option more attractive. However, our advice is to be careful and check out your situation with your IFA and accountant before taking action.

It is also a good way to reduce unwanted surplus cash in the company prior to its sale.

But “these pension contributions will reduce the trading profits on which the sale price is calculated!” I hear you say.

This is not the case, as the one-off pension contributions will be viewed as a non-recurring item and will not feature as part of the valuation of the company being sold.

What you might call a “win-win” situation!

If you would like to find out more about what you should do to achieve a successful company sale, please call David Cane at Sundial Tax & Finance Ltd on 0845 177 0036 or 07749 080 806.