How a Director/Shareholder Can Pay Themselves a Pension from Their Limited Company
As a director and shareholder of your own limited company, planning for retirement is essential. One of the most tax-efficient ways to do this is by making pension contributions directly from your company. This approach helps you save on tax while building a secure financial future.
📢 Act Now – The 5 April 2025 deadline is fast approaching! To maximise your tax savings, ensure you make any pension contributions before the tax year ends.
Why Pay Your Pension Through Your Limited Company?
Making pension contributions directly from your company is more tax-efficient than paying personally. Here’s why:
✔ Corporation Tax Relief – Your company can deduct pension contributions as a business expense, reducing your corporation tax bill (saving up to 26.5%, depending on profit levels).
✔ No National Insurance – Unlike salary payments, pension contributions are exempt from Employer’s and Employee’s National Insurance.
✔ No Personal Tax – Unlike dividends, employer pension contributions don’t count as taxable income for you personally.
✔ Retirement Planning – Contributing regularly helps secure your financial future while benefiting from generous tax reliefs.
Act Before 5 April 2025 to Maximise Your Pension Allowance
As of 2024/25, the standard annual pension contribution allowance is £60,000. This includes:
✔ Any personal and employer contributions made within the tax year.
✔ Contributions from previous employers.
✔ Unused pension allowances can be carried forward from the last three years to increase any potential pension contribution made before 5 April 2025, if funds allow (as long as you already had a pension fund).
📢 Important: If you haven’t fully used your pension allowance for the past three years, you can make additional lump sum contributions before 5 April 2025 to catch up. After this date, any unused allowances from 2021/22 will be lost forever.
🚀 Tip: If your company has profits available, consider making a lump sum contribution before 5 April to maximise tax savings.
How to Pay Yourself a Pension from Your Limited Company
1️⃣ Choose a Pension Scheme – You can use an exisiting Self-Invested Personal Pension (SIPP) or if you don’t already one, please do seek advice from an IFA
2️⃣ Make Employer Contributions – Instead of taking a salary or dividends to pay into your pension personally, your company makes the contribution directly to your pension provider.
3️⃣ Inform Your Pension Provider – Ensure that your pension provider records the contribution as an employer contribution—this is important for tax treatment.
4️⃣ Use a Director’s Loan (If Needed) – If your company doesn’t have enough cash but you have personal savings, you can:
✔ Lend money to the company from personal funds.
✔ Have the company use this loan to fund the pension contribution.
✔ This creates a Director’s Loan Account (DLA), meaning the company owes you money, which can be repaid to you tax-free.
✔ In some cases, the company can pay you interest on this loan, which is corporation tax-deductible (saving 26.5%), and may be tax-free for you personally, depending on your circumstances.
Pension Contributions vs Salary vs Dividends
| Method | Corporation Tax Deduction? | Subject to Income Tax? | Subject to NI? |
|---|---|---|---|
| Pension Contribution (Employer) | ✅ Yes (up to 26.5% relief) | ❌ No | ❌ No |
| Salary | ✅ Yes | ✅ Yes | ✅ Yes (Employer & Employee NI) |
| Dividends | ❌ No | ✅ Yes (8.75%–39.35%) | ❌ No |
💡 Key Takeaway: The most tax-efficient way to extract profits from your company is through a combination of low salary, dividends, and employer pension contributions.
Key Tax Considerations
1️⃣ Annual Allowance Rules
✔ Contributions above £60,000 may be subject to a tax charge, unless you use carry-forward allowances.
✔ If your individual taxable income is over £200,000, your annual pension allowance may be reduced to a minimum of £10,000 (Tapered Allowance Rules) in certain circumstances, so best to seek advice.
📢 Final Thoughts – Act Now Before 5 April 2025!
As a limited company director, paying into your pension directly from the company is one of the most tax-efficient ways to extract profits and prepare for retirement.
🚀 Take action before 5 April 2025 to:
✔ Use your 2024/25 pension allowance before it resets.
✔ Carry forward and use any remaining allowances from 2021/22 before they expire.
✔ Reduce your corporation tax bill for this financial year.
📞 Need help setting up a tax-efficient pension strategy? Book a free consultation today!
