Investing via a personal pension involves the risk that your capital goes down as well as up; you may get back less than you invested. 

Contributions into a personal pension from a business is an expense which reduces the profit of the business and, thus, corporation tax.  

The current upper limit on personal pension contributions is £60,000 per year which, if fully utilised, would save the company up to £15,000. However, many business owners can have the company contribute more into their personal pension by using unused allowances from previous tax years. The maximum that could be contributed this way is currently £200,000, which would equate to a £50,000 reduction in corporation tax. If a spouse is also a director then, potentially, they could do the same, doubling the corporation tax savings to £100,000.

Why pay attention right now? 

Unused allowances can only be utilised from the three previous tax years which means that if they are not used then they are lost. This rule applies to the Government’s tax year – which ends April 5th – not the limited company’s fiscal year. It therefore makes sense for any director wishing to use pension contributions to reduce their corporation tax to consider doing so before April 5th.  

It’s not only about reducing corporation tax… 

Moving money from a company to a personal pension is usually the most tax efficient way for a director to extract profits from a company. In short, it is usually the case that more money goes into the business owners pocket, after all taxes, if the profits are extracted via a pension than if they were paid out via salary or dividends (more details on that here). 

Then, of course, is the whole idea of a pension being a good long term savings and investment vehicle which will grow tax-free until the funds are withdrawn, which is absolutely true and really quite valuable.  

How We Can Help 

We routinely advise on both personal and employer pension contributions. We also can help forecast how the pension might grow in the future and how this can help fund the business owner’s retirement and/or help provide a legacy to future generations. 

More broadly, we have a range of services for businesses themselves including cash management for corporates (minimum £500,000). Often we help successful, family-owned businesses transition into a Family Investment Company, which itself can be highly tax efficient (especially when combined with ongoing pension contributions). As an entrepreneur-led business ourself, we find we are usually well placed to help business owners with their unique financial needs.