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Capital idea to restore pensions

At least one obstacle to pension provision for shareholding directors was removed by Chancellor Gordon Brown&#39s 1998 Budget.

Because of the withdrawal of a concession on writing down allowance in his July 1997 Budget, many directors were planning to spend as much money as possible on capital items – business equipment such as photocopiers, printers, plant and machinery – before July 1, 1998. This could have had a detrimental effect on other short-term expenditure plans such as contributions to directors&#39 pension schemes.

The July 1997 Budget increased capital allowances to 50 per cent in the first year, but only until July 1998, at which point it was assumed they would fall back to 25 per cent. But the Chancellor has surprised us all by announcing capital allowances from July 1998 of 40 per cent in the first year – a very positive move.

Nevertheless, for those more expensive capital purchases, a director will still wish to benefit from the 50 per cent allowance by making the purchase prior to July 1, 1998.

Interestingly, creative use of pension loan facilities on executive personal pensions or small self-administered schemes would enable the company to make a pension contribution and make their capital purchase while also claiming 150 per cent of the purchase price without impacting on short-term cashflows.


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