| If financial advisers had a pound for very time a business owner claimed their business was their pension they would be even richer. It’s not just a tired old mantra that owner-managers regurgitate – for most of you, it’s completely untrue. Find out how to ensure your plan for the future is more than just a pipe dream. Keith Mitchell, investment manager with Newbury firm Pallett & Collins Financial Services is one person who believes the idea of a business being the same as a pension is nonsense. “This may sometimes be true – you can benefit from accelerated capital gains tax relief, which means an effective tax rate of 10%t on gains over just a few years, with the proceeds freely disposable, unlike pension funds – but it is usually bollocks.” But why? Put simply, because there are too many risks. “Your business is not a pension fund if it goes down the tubes. It is not a pension fund if it proves difficult or even impossible to sell because of a highly geared balance sheet or because of your high personal involvement,” Mitchell says. Even if you could sell your business, the sum might be at risk from inheritance tax when you die. Of course, you can’t avoid tax completely but the tax benefits are just one of many reasons why you shouldn’t dismiss pensions out of hand. Paying into a pension fund can be highly tax-efficient. Pension contributions paid by your company into your pension fund are tax-deductible, reducing your business’s corporation tax liability. Company contributions also avoid National Insurance so if you pay yourself more of your salary as pension, you can reduce your NI spend too. Any personal contributions you make from your own pocket are also tax-efficient, giving you tax relief at the highest rate you pay – 40% for high earners. Many investments within pension funds escape tax that would apply elsewhere – property deals are free of capital gains tax, for example. And, at retirement, you can take a lump sum that is not subject to inheritance tax. You can stick money into your pension from any source of funds you like – your taxable earnings, your dividends, your savings and so on. But, because there are significant tax benefits to saving into a pension, there are a range of rules that link how much you can save to how much your earn for tax purposes. The rules get more generous the older you get, allowing you to save more of your income later in life, but, fundamentally, the more you declare to the tax man as income, the more you can save into a pension tax-free. Your accountant will be able to calculate how much each year you can save and you can pay in regularly or annually or a combination of both, paying a standing order monthly and topping up at the end of the year once your accountant has given you the maximum you are allowed to save. | 
