Sunny Bharj
Independent Financial Adviser
Tony Springer
Independent Financial Adviser
A company contribution into a director's pension is one of the few things that reduces this year's corporation tax and builds something you keep.
If you run a limited company, the money you put into a pension can come from the company instead of from you. The company claims it as a business expense, no National Insurance is due on it, and nothing is taxed on you personally.
The part people get wrong is the ceiling. Your own contributions are capped by your earnings, and a director on a small salary and large dividends has very little room. A company contribution is not capped that way, which is why the route matters as much as the amount.
gov.uk and HMRC Pensions Tax Manual, checked 23 September 2026. 2026/27 rates. The Budget on 28 October 2026 can change any of them.
Relief is given for the period the contribution is actually paid, so a contribution accrued in the accounts and paid later lands in the later year.
A small self-administered scheme is an occupational pension scheme an employer sets up for its own people, most often the directors of a family company. What makes it different from a personal pension is what it can do with the money: hold the trading premises, and lend back to the sponsoring company.
The tax rules place no restriction on what a pension scheme may invest in. They work by imposing tax charges on the things they want to discourage, and those charges are severe enough that the practical answer is still no. Residential property is the obvious example.
The limit of 100% of earnings applies to what you pay in yourself. It does not apply to what the company pays.
The loan cannot exceed 50% of the scheme's cash plus the net market value of its assets, measured immediately before the loan is made.
Security is a first charge, for the whole term, over an asset worth at least the loan plus the interest.
At least one percentage point above the average base lending rate of six named high street banks, rounded up to the nearest quarter point. It is set by regulations and resets monthly, so the rate is whatever the formula gives at the time.
Maximum term of five years. If anything is still outstanding it can be rolled over once.
Repayment has to be in equal instalments covering both, for each complete year. An interest-only loan fails the test.
Miss any one of the five and the whole loan is an unauthorised payment: 40% on the borrower, a possible further 15% surcharge, and a scheme sanction charge on the administrator.
Up to the annual allowance, currently £60,000 for most people, plus any unused allowance carried forward from the three previous tax years. Unlike your own contributions it is not limited by your salary, though it does have to be justifiable as part of your remuneration package.
For money you do not need now, usually. A dividend is paid out of profit that has already borne corporation tax and is then taxed again in your hands. A pension contribution is deducted before corporation tax and is not taxed on you at all. What you give up is access until at least 55, rising to 57 in 2028.
Where they are a genuine employee of the company, and the overall package is commercially justifiable, yes. A contribution into the pension of a director's family member who is not an employee is taxable on the director as earnings.
Most directors do not. It is worth the administration where the scheme is going to own the trading premises or lend to the company. For contributions alone a personal pension or a SIPP does the same job with less administration.
Commonly, yes, and it is one of the main reasons directors use a SSAS or a SIPP. The company then pays rent to the scheme, which is a deductible expense for the company and grows the pension. The rent has to be commercial.
Nothing automatically. The pension is separate from the company and is not part of the sale. Where the scheme owns the premises or has lent to the company, the sale has to deal with that, which is a reason to raise it early.
Pension benefits and their tax treatment depend on your circumstances and on current rules, which can change. The Financial Conduct Authority does not regulate tax advice. Figures are 2026/27.
Yes. For most directors it is the cheaper route: the company claims it as an expense and your salary does not cap it.
Read the answer →Yes, up to half the fund, on five strict conditions. Miss one and the whole loan is taxed as an unauthorised payment.
Read the answer →Legally yes, in practice no. The tax charges are severe enough that it is almost never sensible.
Read the answer →Independent Financial Adviser
Independent Financial Adviser
A first conversation of about twenty minutes, at no cost to you. Tell us what is on your mind: a pension you have lost track of, a fixed rate ending, a will you keep meaning to write.