As a business owner, making your own pension contributions might be the last thing on your mind. In fact, would it even make it into your SWOT analysis? It should, as pensions can offer business owners excellent tax-efficient opportunities.

Whether you are a sole trader, partnership or limited company, you could make use of a:

  • Personal Pension; the simplest type of Defined Contribution scheme
  • Stakeholder Pension; a Personal Pension that has a maximum cap on charges
  • Self-Invested Personal Pension (SIPP); a Personal Pension where you have control over the investments within, some of which are not allowed in other
  • Small Self-Administered Scheme (SSAS); an Occupational Pension, usually for the directors and partners of a business, who will also be pension trustees. Like a SIPP you control the investments within, but with the trustees in a collaborative manner.

There are pros and cons of each scheme type, but the tax advantages remain the same:

  • If you trade as a limited company, employer contributions are treated as a business expense and are offset against your Corporation Tax bill. You also won’t pay National Insurance
  • If you are a sole trader or partner, contributions will also attract tax relief
  • Any personal contributions you make are free of Income Tax

Your pension fund will grow tax efficiently and from the age of 55 up to 25% of the fund will be available as a tax-free lump sum. Under Pension Freedoms which came in to effect in 2015, the remaining 75% can be withdrawn at any time, in whatever amount you want, and is liable to Income Tax along with any other earnings in that year.

How much can you pay in?

The annual allowance (the maximum you can pay into a pension annually without paying tax) is capped at the equivalent of your ‘relevant UK earnings’, up to a maximum of £40,000. The annual allowance can be reduced in certain circumstances, so it is always wise to take advice before making large contributions.

The definition of ‘relevant UK earnings’ is an important consideration for business owners, as it doesn’t include dividends, which are typically the most tax-efficient way of drawing an income from your business.

Therefore, you can either increase your salaried income (and income tax liability) or increase your employer contributions. The latter being the most attractive option, as employer contributions are not capped by the relevant earnings rule, meaning you can contribute your whole £40,000 allowance via the business.

Benefits for the business

Most people will invest their pension in a portfolio of funds, aligned with the level of investment risk they are willing to take. But certain pensions, namely SIPPs and SSASs, have wider investment options which may be particularly valuable to you.

Purchasing commercial property

The thought of owning your commercial premises might appeal to you; no more wasted money on rent! Warehouses, retail and office space are all available to purchase if the appropriate property comes on the market. Furthermore, your pension doesn’t have to fund it alone, as your pensions can borrow up to 50% of its net value to help finance the purchase.

The pension, or more specifically the pension trustees, will be the legal owner of the property. Your business can rent it from the pension, at the appropriate going market rate. This means more tax-efficient savings, free of Capital Gains Tax to enhance your retirement, and a regular business expense reducing Corporation Tax.

Using a pension to buy commercial property isn’t without some drawbacks; you will need to ask the Trustees permission before making any alterations, as they are effectively your landlord. The process of purchasing a property is also quite complicated and has numerous costs associated, from one-off conveyance fees to ongoing pension administration charges.


Plenty of food for thought. You could minimise Income Tax, Corporation Tax and potentially Capital Gains Tax, all whilst saving towards your retirement. Having the opportunity to make full use of the Annual Allowance also presents potentially beneficial retirement planning opportunities.

Moreover, if your business operates from rented premises, or if you own property directly, the advantages of purchasing it with your pension are quite compelling. Pensions might just have moved up your priority list. If so, give one of our expert financial planners a call on 0116 2407070.