How much can a Ltd company director contribute to a pension?

An owner-managed company can pay an employer pension contribution up to the director's available Annual Allowance for the tax year, which is £60,000 standard in 2026/27 plus any unused allowance carried forward from the previous three years (a theoretical £240,000 maximum). Employer contributions are not capped by relevant UK earnings, so a director on a £12,570 PAYE salary can still receive a £60,000 employer contribution. For the contribution to be deductible against Corporation Tax it must satisfy the HMRC "wholly and exclusively" test under BIM46035, meaning the total remuneration package (salary plus pension plus benefits) must be commercially justifiable for the work performed. Spouses on the company payroll need genuine duties documented or HMRC will disallow the deduction.

Are employer pension contributions deductible against Corporation Tax?

Yes, provided the wholly and exclusively rule in BIM46035 is met. An employer pension contribution paid in the accounting period reduces taxable profits by the contribution amount, saving Corporation Tax at the marginal rate of 25% (main rate), 26.5% (marginal relief band between £50,000 and £250,000 of profits) or 19% (small profits rate below £50,000). HMRC manual BIM46035 confirms employer pension contributions are revenue expenses deductible in the period paid. There is no spreading rule for "small" contributions (under £500,000 of incremental contribution vs the prior year), but very large one-off contributions may be spread over up to four periods under FA 2004 s197.

What is the tapered Annual Allowance and how do dividends affect it?

The tapered Annual Allowance reduces a director's £60,000 standard AA by £1 for every £2 of adjusted income above £260,000, down to a floor of £10,000 at adjusted income of £360,000 or more. Adjusted income includes salary, taxable benefits, employer pension contributions and dividend income. Threshold income (broadly total taxable income less the director's own pension contributions) must also exceed £200,000 for the taper to bite. Dividends count towards both threshold and adjusted income, which means a director taking £150,000 in dividends plus a £30,000 salary plus a £60,000 employer pension contribution has adjusted income around £240,000 and is below the taper - but the same director with £180,000 of dividends would cross £260,000 and lose AA.

What is a SSAS and how does it differ from a SIPP?

A Small Self-Administered Scheme (SSAS) is an occupational pension scheme set up by a limited company, with the directors typically acting as both members and trustees. It can have up to 11 members and is regulated under the Pensions Act 2004 with HMRC registration for tax relief. A SIPP (Self-Invested Personal Pension) is an individual personal pension wrapper. The key differences: a SSAS can lend up to 50% of net asset value back to the sponsoring employer (loanback), can pool member funds for joint investment, and can hold trustee-borrowed commercial property. A SIPP cannot make loanbacks to a connected company and each member's pot is segregated. SSAS setup and running costs are higher (£500 to £1,500 setup, £600 to £1,200 annual administration), so SSAS makes sense when fund value exceeds about £100,000 or where loanback or pooled property is the actual goal.

Can a SSAS lend money to the sponsoring company?

Yes, this is the SSAS loanback facility, governed by HMRC rules in PTM123100 and Schedule 30 to Finance Act 2004. To avoid being treated as an unauthorised payment (taxed at 40% to 70%), the loan must satisfy five conditions: maximum loan of 50% of the SSAS net asset value, maximum term of 5 years (one rollover of up to 5 years allowed if at least 50% of capital plus interest has been paid), commercial interest rate at least 1% above the average of six major bank base rates rounded up to the nearest 0.25%, equal capital and interest instalments at least annually, and security taken as a first charge over an asset worth at least the loan amount. Failures on any condition trigger an unauthorised payment charge plus a scheme sanction charge.

Can a SSAS or SIPP buy commercial property?

Yes, both wrappers can hold UK commercial property directly, and SSAS can buy property jointly with other members or with the sponsoring employer. The classic strategy is to use the pension to buy the trading premises and then lease them back to the company at a commercial market rent. The rent paid by the company is a deductible Corporation Tax expense (saving 25% CT in the main band) while the rent received by the SSAS or SIPP grows tax-free inside the pension wrapper. Capital growth on the property is also tax-free. The pension can borrow up to 50% of net asset value to fund the purchase. Residential property is not permitted (taxable property charges of up to 70% apply if breached) and the lease must be at arm's length with a RICS-qualified valuer setting the rent.

Is pension better than dividends for extracting profit from a Ltd company?

Below the Annual Allowance, pension extraction is materially more tax-efficient than dividends for owner-managed companies, especially for directors not yet wanting the cash. A £60,000 employer pension contribution costs the company £45,000 net of 25% Corporation Tax relief (in the main rate band) and lands £60,000 in the pension. The same £60,000 paid as a dividend faces Corporation Tax first (so the company needs £80,000 of profit to declare a £60,000 dividend after 25% CT), then 33.75% dividend higher rate or 39.35% additional rate, leaving the director with about £36,500 to £39,800 net. Pension wins by roughly 50% on a like-for-like basis. The trade-off is access: pension funds are locked until age 57 (rising to 58 from April 2028), while dividends are immediate cash.

Do employer pension contributions count against the tapered AA?

Yes. Employer contributions are included in both the pension input total counted against the Annual Allowance and the adjusted income figure used to test the taper. This is critical for directors: a strategy of "keep salary low, take the rest in dividends, plus a £60k employer pension contribution" can push a director with substantial dividends into the taper because the £60k employer contribution adds to adjusted income on top of the dividends. The way out is to keep total adjusted income below £260,000 (so the taper does not apply) or to use a SSAS where the contribution is structured as a property purchase by trustees rather than a member contribution if appropriate (a niche planning point - the AA still applies to any contribution made).

Are pensions inside or outside the Inheritance Tax estate?

Defined contribution pension pots are currently outside the Inheritance Tax estate, but this changes from 6 April 2027 under the Autumn Statement 2024 announcement. From that date, unused DC pension funds and lump-sum death benefits will be brought into the estate for IHT purposes, taxed at the standard 40% rate above the nil-rate band. Death before age 75 will still allow income drawdown or lump sums to be paid free of Income Tax to the nominated beneficiary, but the IHT layer applies before the funds leave the estate. Death after age 75 already triggers Income Tax at the beneficiary's marginal rate on any withdrawal, so post-2027 the combined IHT plus Income Tax effective rate on death-after-75 inherited pensions can reach 67% in the worst case. Directors with substantial pots should reassess pension vs ISA vs other wrappers before April 2027.

What is disguised remuneration and how does HMRC police it?

Disguised remuneration is HMRC's catch-all term for arrangements that route reward through a third party (often a trust or offshore structure) to avoid PAYE Income Tax and NICs on what would otherwise be ordinary employment income. The Part 7A ITEPA 2003 charging rules treat third-party payments to or for the benefit of an employee as employment income subject to PAYE in the period of the relevant step. Pension contributions made under genuine HMRC-registered schemes are explicitly carved out as authorised, but contrived arrangements using EBT loans, employer-financed retirement benefit schemes (EFRBS), or non-UK pensions that fail the HMRC overseas pension scheme conditions are vulnerable to challenge. The Loan Charge introduced in 2017-19 covered historic EBT and contractor-loan schemes back to 1999. Genuine SSAS and SIPP contributions paid by the sponsoring employer are not at risk; the risk is in artificial structures.

When does carry-forward expire?

Carry-forward of unused Annual Allowance lapses at the end of the fourth tax year. In 2026/27 (2026-27) you can use unused allowance from 2023-24, 2024-25 and 2025-26. The allowance from 2023-24 will permanently drop off at the end of 5 April 2027. Carry-forward is used in chronological order: current year first, then oldest carry-forward year, then next oldest, then most recent. Membership of a UK-registered pension scheme in each carry-forward year is required (mere membership is enough - no minimum contribution). A director planning a large one-off employer contribution following a business sale, dividend, or windfall should check carry-forward eligibility before the relevant year-end as the unused allowance is "use it or lose it".

Does the MPAA affect employer contributions from my Ltd company?

Yes. The Money Purchase Annual Allowance of £10,000 caps the combined total of all defined contribution pension input including employer contributions, once you have flexibly accessed any DC pension pot. A director who triggers MPAA by taking taxable income from a SIPP cannot then accept more than £10,000 a year of employer contributions into any DC scheme (including a SSAS holding only money market assets) without an AA tax charge. This is the single biggest planning trap for directors approaching semi-retirement: taking £1 of taxable drawdown to "test" the system permanently restricts the DC contribution headroom for any future re-engagement with the business. Defined benefit accrual outside the MPAA still uses the residual £50,000 alternative AA, but pure-DC SSAS and SIPP arrangements lose the headroom permanently.

UK Director Pension Strategies (2026/27)

A reference page for limited-company directors using the pension wrapper as a Corporation Tax planning tool. Covers employer contributions as a "wholly and exclusively" deductible expense, director-level salary sacrifice, the three-year carry-forward window, the tapered Annual Allowance trap that dividends silently widen, the £10,000 MPAA, Small Self-Administered Schemes (SSAS) for property and loanback, SSAS vs SIPP trade-offs, commercial property purchase via the pension with lease-back to the trading company, pension vs dividend extraction maths, disguised remuneration anti-avoidance, and the April 2027 IHT change bringing DC pensions into the estate. Every figure traces back to HMRC's Pensions Tax Manual or Business Income Manual.

This page is technical reference, not financial advice. Director pension planning sits at the intersection of pensions tax law, Corporation Tax, and estate planning and is reviewed annually by HMRC. Engage a qualified IFA (FCA-regulated), STEP-qualified estate planner, or CTA-qualified tax adviser before executing any strategy on this page, particularly SSAS structures and loanbacks.

1. Overview

A limited-company director extracting profit from an owner-managed business has three tax-efficient wrappers worth using before resorting to high-rate dividend extraction: ISA (£20,000 a year, post-tax money, fully tax-free thereafter), pension (£60,000 standard Annual Allowance plus carry-forward, pre-tax deductible expense to the company, taxed on the way out at marginal rate after 25% tax-free PCLS), and EIS or VCT (front-end Income Tax relief with risk-asset exposure). Of these, the pension wrapper has by far the largest annual capacity for the typical owner-managed company director and is the only one that is deductible at the corporate level.

Director pension planning differs from employee pension planning in three material ways. First, the director controls both sides of the contribution decision: the "employer" (the Ltd company) and the "employee" (the director personally) are essentially the same legal person economically, so the planning question is which side absorbs the tax saving. Second, dividends count towards the tapered AA adjusted-income test and threshold-income test, which catches many directors who assume "dividends do not count for pensions" (they do, for taper). Third, the SSAS structure unlocks two facilities that personal pensions cannot offer: loanback to the sponsoring employer (up to 50% of net asset value), and pooled commercial property purchase typically combined with lease-back of the trading premises.

The remainder of this guide works through the Corporation Tax deductibility test, the three-year carry-forward window, tapered AA mechanics for dividend-heavy directors, MPAA trap, SSAS architecture, SSAS vs SIPP, commercial property purchase, pension vs dividend extraction maths and the disguised remuneration anti-avoidance perimeter. For broader pension mechanics that apply to employees and directors alike, see the pension tax relief guide.

2. Employer pension contributions as a Corporation Tax expense

An employer pension contribution paid by the limited company is deductible against trading profits in the accounting period it is paid, reducing Corporation Tax at the company's marginal rate. From April 2023, the CT rate is 19% for small profits below £50,000, 26.5% in the marginal-relief band between £50,000 and £250,000 of profits, and 25% on the slice above £250,000. The deduction is governed by HMRC Business Income Manual BIM46035 and the general "wholly and exclusively" test in section 54 Corporation Tax Act 2009.

The wholly and exclusively test. HMRC will allow the deduction only where the total remuneration package (salary + pension + benefits in kind + employer NIC) for the director or other employee is commercially justifiable for the work performed. The test is applied at the level of the package, not the pension contribution alone, so a director earning a market-rate salary plus a £60,000 employer pension contribution is generally fine where the total package reflects an arm's-length remuneration for the role. Spouses paid through the business need genuine documented duties: HMRC will disallow contributions for a "company secretary" spouse with no real involvement and reclassify the payment as a disguised distribution. Children employed through the business (an increasingly common planning lever) face the same scrutiny plus the additional National Minimum Wage and working-time restrictions if under 18.

Timing. The deduction is taken in the accounting period in which the contribution is paid, not accrued. A contribution accrued at year-end but not physically paid until after the period closes goes into the next period's accounts. For owner-managed companies with a 31 March year-end, this means the pension contribution must clear the company bank account on or before 31 March to count against that period's CT. Salary sacrifice arrangements operate through payroll, so the relevant date is when the payroll-generated contribution is paid by the employer to the pension provider, typically within a few days of the payroll run.

Spreading large one-off contributions. Where the employer makes a contribution materially larger than its established pattern of contributions, FA 2004 s197 may require the deduction to be spread over up to four accounting periods. The spreading test compares the current contribution to the contributions in the previous and following equivalent periods. The de minimis threshold for spreading is £500,000 of incremental contribution above the prior-year baseline, so most owner-managed company contributions (£60,000 plus carry forward up to £240,000) fall well below the threshold and are deductible in full in the period paid. Exceptional cases - a director paying in £500,000+ from accumulated reserves following a successful trade - need bespoke advice.

Worked example. Owner-managed consulting Ltd with £200,000 of trading profit before director remuneration. Director takes £12,570 PAYE salary (Personal Allowance, zero Income Tax, zero employee NIC below Primary Threshold for $2026/27) and £60,000 employer pension contribution. CT-deductible payroll cost: £12,570 salary + £60,000 pension = £72,570 plus negligible employer NIC at this salary level. Taxable profit: £200,000 minus £72,570 = £127,430, sitting in the marginal-relief band. Corporation Tax at marginal effective rate ~26.5%: about £33,770. Compare with taking the same £60,000 as dividend: CT on £200,000 is ~£42,400, dividend net of dividend tax (33.75% higher rate on most of it) lands about £39,750 in the director's hand for the same starting profit. Pension route delivers £60,000 into the wrapper plus £12,570 take-home for a combined £72,570 of value extraction at a corporate tax cost of about £8,600 less than the dividend-heavy route, before accounting for the eventual tax on pension drawdown. The numbers favour pension by a wide margin while the headroom exists.

3. Director-level salary sacrifice

Salary sacrifice for a director is mechanically the same arrangement as for any employee: a contractual reduction in gross salary in exchange for an equivalent employer pension contribution. The director signs a formal variation to the service contract (recorded by board minute) agreeing to a lower contractual salary, and the company pays the foregone amount directly to the pension provider. Because the money never reaches the director as salary, it bypasses Income Tax, employee NIC (8% main, 2% above UEL) and employer NIC (15% above the £5,000 Secondary Threshold from April 2025).

Where it makes sense for directors. Salary sacrifice has the biggest impact where the director is taking a meaningful PAYE salary (above the Personal Allowance, typically £50,000+) and would otherwise pay 40% Income Tax plus NIC. For directors on the £12,570 Personal Allowance salary plus dividend strategy (the most common owner-managed setup), sacrifice has limited NIC value because there is little salary above the Primary Threshold to sacrifice; the employer simply pays the pension contribution directly without a sacrifice arrangement. The Corporation Tax deductibility is identical either way.

Employer NI pass-back. Where the director is also the controlling shareholder, the 15% employer NIC saved on a sacrifice arrangement is itself a Ltd-company cash saving. Best practice for owner-managed companies is to pass 100% of the employer NIC saving into the pension pot, since the company has no third-party shareholder interest to balance. Document the pass-back in a board minute or pension contribution policy to evidence the wholly and exclusively test.

Anti-forestalling and the £100k taper. Directors approaching £100,000 of total taxable income (the trigger for the Personal Allowance taper at 60% effective marginal rate) can use salary sacrifice or employer contributions to bring adjusted net income below £100,000 and restore the full Personal Allowance. The same lever works for the £60,000 HICBC threshold (Child Benefit clawback) and the £125,140 additional-rate threshold. The Personal Allowance restoration is worth £2,514 of tax on every £5,000 of pension contribution that crosses the £100,000 gate, layered on top of the 40% Income Tax saving on the contribution itself - the 60% effective relief rate. Model with the 60% tax trap calculator.

4. Three-year carry-forward of unused AA

Unused Annual Allowance from the previous three tax years can be carried forward and used in the current year, in chronological order with the oldest year used first. For $2026/27 (2026-27) the carry-forward lookback covers 2023-24, 2024-25 and 2025-26. After 5 April 2027 the 2023-24 allowance permanently drops off, replaced by 2026-27 dropping into the carry-forward window. Carry-forward is automatic - no election or form is required - and uses the AA that was in force in each historic year (£60,000 for all three years in the current window, since the AA was raised from £40,000 to £60,000 in April 2023).

Membership requirement. To use the carry-forward from a given prior year, the individual must have been a member of a UK-registered pension scheme in that year. Mere membership is sufficient - a deferred personal pension or a workplace scheme not contributed to but still active counts. A director who first set up a pension in 2025-26 can carry forward from 2025-26 only and cannot reach back to 2023-24 or 2024-25 unless they were a member of some other UK registered scheme in those years (an old employer scheme, a stakeholder pension, a SIPP with £0 balance). This is the single biggest blocker for newly-incorporated directors who have never had a pension; opening a token SIPP with a £100 contribution today preserves carry-forward room for future business windfalls.

Maximum single-year contribution. Combining a full current £60,000 AA with three prior years of unused £60,000 AA gives a theoretical maximum contribution of £240,000 in one tax year. Employer contributions are not capped by relevant UK earnings (the earnings cap applies only to personal contributions), so the £240,000 can be paid in full from the company as an employer contribution regardless of the director's salary, subject only to the BIM46035 wholly-and-exclusively test on the resulting remuneration package. For business-sale events, one-off bonus realisations or accumulated retained profits in a long-running owner-managed company, this is the cleanest single planning lever in UK personal tax.

Worked example. Director of a consulting Ltd with three years of accumulated retained profits, planning to fully wind down the company in 2028-29 and use BADR. Carry-forward history:

2023-24: pension input £10,000 (workplace only). Unused: £50,000.
2024-25: pension input £15,000. Unused: £45,000.
2025-26: pension input £20,000. Unused: £40,000.
2026-27: current year AA £60,000.

Maximum contribution in $2026/27 = £60,000 + £50,000 + £45,000 + £40,000 = £195,000 gross, paid as an employer contribution from the Ltd company. CT deduction at 25% main rate saves £48,750 of Corporation Tax. Net cost to the company: £146,250 to put £195,000 into the pension wrapper. The director's eventual withdrawal will pay marginal-rate Income Tax on 75% of the fund (after 25% tax-free PCLS), so the net effective tax cost on extraction depends on the drawdown rate profile in retirement. Use the pension annual allowance calculator to model carry-forward against actual contribution history.

5. Tapered AA management for dividend-heavy directors

The tapered Annual Allowance reduces the standard £60,000 AA by £1 for every £2 of adjusted income above £260,000, down to a floor of £10,000 at adjusted income of £360,000+. Two tests apply:

Threshold income is broadly total taxable income less the individual's own pension contributions. If threshold income is at or below £200,000, no taper applies regardless of adjusted income.
Adjusted income is threshold income plus all pension contributions (own + employer + DB accrual). Taper applies only if both gates are crossed: threshold income above £200,000 AND adjusted income above £260,000.

Dividends count both ways. Dividends paid to the director count towards both threshold income and adjusted income (they are taxable income on Self Assessment, even though they are not subject to NIC). This is the single biggest taper-management trap for owner-managed company directors: a director with £150,000 of dividends, £30,000 salary and £60,000 of employer pension contributions has adjusted income of £240,000 and threshold income of £180,000 - comfortably below both gates, no taper. The same director with £180,000 of dividends has threshold income £210,000 (above the £200,000 gate) and adjusted income £270,000 (above £260,000 by £10,000), losing £5,000 of AA. The taper bites silently because dividends are not on a payslip and many directors forget to include them in the AA test.

Mitigation strategies. Three levers are available to a director crossing the threshold:

Defer dividends into the following tax year if the company has the cash to hold them. This is by far the cleanest lever - declaring a dividend in early April vs late March moves it to the next year's tests.
Increase the director's own pension contribution to reduce threshold income below £200,000, which switches the taper off entirely. A £20,000 personal contribution from a director with £210,000 threshold income drops them to £190,000 and disapplies the taper, restoring the full £60,000 AA.
Split income with a spouse who is a genuine director or employee of the company. Spouse dividends are taxable on the spouse, not the director, so they do not count towards the director's AA tests. The transfer of shares must be genuine and the spouse's role documented.

Carry-forward survives the taper. Even when current-year AA is tapered to the £10,000 floor, unused carry-forward from prior years remains usable in the current year. A director tapered to £10,000 in 2026-27 with £50,000 of unused 2023-24 AA can still contribute £60,000 (the tapered £10,000 plus £50,000 from 2023-24). Model with the pension annual allowance calculator.

6. MPAA after flexi-access

The Money Purchase Annual Allowance (MPAA) is a permanent reduction of the AA from £60,000 to £10,000 for defined contribution input, triggered once you flexibly access any DC pot. Taking the 25% PCLS without crystallising any taxable income does NOT trigger MPAA. Buying a standard guaranteed annuity does NOT trigger MPAA. The triggers are: taking taxable income from flexi-access drawdown, taking an Uncrystallised Funds Pension Lump Sum (UFPLS), exceeding the cap on a capped drawdown plan, or buying a flexible annuity.

Director-specific trap. A director semi-retiring from active business but planning to retain some consulting income via the Ltd company is particularly exposed. Drawing £1 of taxable income from a SIPP at age 57 to "test the system" or to use the Personal Allowance permanently caps future DC employer contributions at £10,000 per year, removing the £60,000 contribution headroom that funded the Ltd company strategy in the accumulation phase. The MPAA cannot be reversed. Defer the first flexi-access withdrawal until the Ltd company contribution strategy is fully wound down, or use PCLS-only withdrawals (which do not trigger MPAA) to draw tax-free cash while preserving the AA. Some directors use small-pots withdrawals (£10,000 or less from each of up to three pensions under PTM63600) which also do not trigger MPAA.

7. SSAS basics

A Small Self-Administered Scheme (SSAS) is an occupational pension scheme set up under trust by a limited company, governed by Pensions Act 2004 and registered with HMRC for tax relief under Part 4 Finance Act 2004. The sponsoring employer is the Ltd company; the members are the directors and (optionally) other employees up to a maximum of 11 members; and the members typically act as trustees themselves, with an independent professional trustee (the "scheme administrator") providing HMRC reporting and compliance oversight.

Why directors choose SSAS over SIPP. Three structural features distinguish SSAS from a personal SIPP:

Loanback. The SSAS can lend up to 50% of its net asset value back to the sponsoring employer at commercial terms (PTM123100). No personal pension or SIPP can lend to a connected party. Loanback is useful for working-capital cycles, asset purchases, or bridging finance where the alternative is a high-rate bank loan.
Pooled investment. Member funds inside the SSAS can be pooled for joint investment. Two directors with £200,000 and £300,000 of accumulated pension can jointly buy a £500,000 commercial property. With separate SIPPs they would need a more elaborate co-ownership structure.
Employer-connected commercial property. The SSAS can buy the trading premises and lease them back to the sponsoring company at a commercial rent. SIPPs can also buy commercial property but lack the joint-ownership and loanback flexibility around it.

Setup and running costs. A SSAS typically costs £500 to £1,500 to set up (deed of trust, HMRC registration, scheme administrator appointment) and £600 to £1,200 a year to run, plus transaction fees for any property purchases or loanbacks. SIPPs by contrast often cost £0 to set up and £100 to £500 a year to run, with transaction fees only on dealing. SSAS therefore makes economic sense where the pooled value exceeds about £100,000 to £150,000 and the loanback or property facility is the actual planning goal, not just for the tax wrapper benefit (which a cheap SIPP provides identically).

HMRC compliance. SSAS schemes file annual Event Reports to HMRC, must keep proper records of all loanbacks and property transactions, and are subject to unauthorised payment charges of 40% to 70% if rules are breached. The scheme administrator (typically a third-party SSAS specialist provider) is jointly liable for tax penalties, which is why professional administration is effectively mandatory.

8. SSAS vs SIPP

Both SSAS and SIPP are registered DC pension wrappers with identical tax treatment on contributions, growth and withdrawals. The differences are structural and operational:

Legal form. SSAS is an occupational scheme (employer-sponsored, trust-based, member-trustees). SIPP is a personal pension (individual contract with a regulated provider).
Member limit. SSAS: up to 11 members. SIPP: one member per contract.
Loanback to employer. SSAS: yes, up to 50% NAV at commercial terms. SIPP: no (loanbacks to connected parties are unauthorised payments).
Pooled investment. SSAS: yes - all members' funds in one pool. SIPP: each pot is segregated.
Investment universe. Both can hold UK shares, ETFs, funds, commercial property, gold, and most assets except residential property and "taxable property" (eg fine art, classic cars). SSAS has slightly more flexibility on unlisted shares of connected companies (still restricted but possible at arm's length).
Borrowing. Both can borrow up to 50% of net asset value to fund investments (typically commercial property).
Setup cost. SSAS: £500 to £1,500. SIPP: £0 to £300.
Annual cost. SSAS: £600 to £1,200 plus transaction fees. SIPP: £0 to £500 plus platform percentage fee plus dealing commissions.
Regulator. SSAS: The Pensions Regulator (TPR). SIPP: Financial Conduct Authority (FCA).
Best fit. SSAS: owner-managed Ltd company directors wanting loanback or pooled property. SIPP: individuals wanting broad investment choice with no connected-party facilities.

Choosing. For a single director with no property or loanback plans and no spouse on the payroll, a low-cost SIPP (Vanguard, InvestEngine, AJ Bell, Hargreaves Lansdown) is operationally simpler and cheaper. SSAS earns its higher costs when the loanback facility is genuinely used (eg cyclical working capital cycles, equipment financing, bridging) or when a commercial property purchase is being jointly funded with a co-director or spouse. Many directors run both: a SIPP for liquid market investments and a SSAS holding the trading premises.

9. Commercial property in SSAS

The classic SSAS commercial property structure is to buy the trading premises (office, workshop, warehouse, retail unit) through the SSAS and lease them back to the sponsoring Ltd company at a commercial market rent. This delivers three simultaneous tax benefits:

The rent paid by the Ltd company is a tax-deductible trading expense, saving Corporation Tax at the marginal rate (19% to 26.5%).
The rent received by the SSAS grows tax-free inside the pension wrapper - no Income Tax, no Corporation Tax on the pension's income.
Capital appreciation of the property accrues tax-free inside the SSAS - no Capital Gains Tax on eventual sale.

Mechanics. The SSAS members (directors) transfer in existing pension pots and / or make fresh employer contributions until the SSAS has the cash to buy. The SSAS can borrow up to 50% of net asset value to top up the purchase price (a £400,000 SSAS can buy up to £600,000 of property with £200,000 of borrowing). A RICS-qualified surveyor must value the property and set an arm's-length rent. The Ltd company signs a formal commercial lease with the SSAS as landlord. The rent must actually be paid; failure triggers HMRC scrutiny.

Residential property is banned. Pension schemes cannot hold residential property directly. Doing so triggers a "taxable property" charge of up to 70% of the asset value (15% scheme sanction charge plus 55% unauthorised payment charge). Holiday lets, furnished holiday lets (no longer a special category from April 2025) and serviced flats are all residential and excluded. Commercial only.

Worked example. Owner-managed consulting Ltd renting office space at £30,000 a year from a third-party landlord. After a few years of profitable trading the director has accumulated £350,000 in their SIPP. They transfer it into a newly-established SSAS and buy a £500,000 office unit for the trading company, using £150,000 of SSAS borrowing to top up the purchase. The Ltd company now pays £30,000 a year of rent to the SSAS (deductible at 26.5% marginal CT saves £7,950 a year) instead of to the third-party landlord. The £30,000 lands in the SSAS tax-free, paying down the borrowing and adding to the pension fund. Capital growth on the £500,000 unit over 20 years (say doubling to £1,000,000) accrues tax-free inside the SSAS, ready to be drawn at retirement at 25% PCLS + drawdown rates. Compared with personal ownership and rental, the structure saves CT annually, saves CGT on sale, and the trading company still gets full deduction for the rent expense. The catch: liquidity is locked until age 57+ and the property cannot be sold without a willing buyer.

Costs and gotchas. Stamp Duty Land Tax applies to the SSAS purchase at commercial rates (typically 5% above £250,000 for non-residential). Legal and surveyor fees add another £5,000 to £10,000 to the purchase cost. The SSAS administrator typically charges a one-off property purchase fee of £1,000 to £2,500 plus annual property administration of £400 to £800. The structure is highly tax-efficient but operationally heavier than buying ETFs.

10. Pension vs dividend extraction

The headline question for owner-managed company directors is whether to extract surplus profit as dividend (immediate cash, taxed at 8.75% basic / 33.75% higher / 39.35% additional dividend rate) or as employer pension contribution (deferred cash, deductible against CT today, taxed at marginal Income Tax on withdrawal after age 57 with 25% PCLS tax-free).

Pension wins on like-for-like maths up to the AA. A £60,000 employer pension contribution costs the company £45,000 net of 25% CT relief and delivers £60,000 into the wrapper. The same £60,000 paid as a dividend requires the company to first earn £60,000 of post-CT profit (which started life as £80,000 pre-CT), then suffers 33.75% dividend higher rate on the director's hand, netting about £39,800. Pension delivers £60,000 to the wrapper at company cost £45,000; dividend delivers £39,800 to the director at company cost £80,000. Pension is roughly 70% more efficient on a like-for-like basis where the AA headroom exists. Even allowing for marginal-rate Income Tax on 75% of the pension at drawdown (40% higher rate would tax £45,000 of the £60,000 pot at £18,000), the pension net of drawdown tax delivers £42,000 vs the dividend's £39,800 - and that is before any years of tax-free investment growth in the wrapper.

Dividend wins on liquidity and short horizon. Pensions are locked until age 57 (rising to 58 in April 2028). A director who needs cash now - for a house deposit, school fees, business reinvestment outside the pension, or to fund a separate investment - has no choice but dividend. Dividend tax rates (8.75% / 33.75% / 39.35%) are also lower than the 20% / 40% / 45% Income Tax rates on pension withdrawal, so for a director who will be at 40% or 45% in retirement (eg substantial DB pension already in payment) the pension's deferred-tax advantage narrows.

Mixed strategy is usually optimal. Most owner-managed company directors use a mixed-extraction strategy: low PAYE salary (typically Personal Allowance £12,570 or Secondary Threshold £5,000 depending on NIC optimisation), employer pension contribution up to the available AA including carry-forward, then dividends for whatever spendable cash is needed beyond the salary. Use the salary vs dividend calculator to model the optimal salary level and the dividend tax calculator for the remaining dividend slice.

11. Death benefits and the April 2027 IHT change

DC pension funds are currently outside the Inheritance Tax estate, which has made pensions a powerful estate planning vehicle. Death before age 75 allows the entire undrawn fund to pass to nominated beneficiaries as drawdown or lump sum with no Income Tax (capped by the Lump Sum and Death Benefit Allowance of £1,073,100). Death after age 75 keeps the fund outside the estate for IHT but the beneficiary pays Income Tax at their marginal rate on any withdrawal.

April 2027 change. The Autumn Statement 2024 announced that from 6 April 2027, unused DC pension funds and lump-sum death benefits will be brought into the IHT estate, taxed at the standard 40% rate above the nil-rate band and residence nil-rate band. The reform is being legislated in Finance Bill 2026-27 and is intended to remove the "pension as an IHT shelter" planning practice that grew after the LTA abolition. The current Income Tax treatment continues separately, which means a beneficiary inheriting a pension on a death after age 75 may pay both 40% IHT (post-2027) on the fund AND marginal Income Tax (up to 45%) on the eventual withdrawal, giving a combined effective tax rate of up to 67% in the worst case.

What it means for directors. Directors with substantial pension pots (£500,000+) who were treating pension as an inter-generational wealth transfer vehicle need to reassess before April 2027. The remaining estate-planning advantages of pension are still meaningful: tax-free investment growth, the 25% tax-free PCLS, the death-before-75 Income Tax exemption on beneficiary withdrawal. But the IHT shelter element is being closed. Alternative planning routes (life assurance written in trust, gifting outside the 7-year window with the 7-year gift taper calculator, Business Relief on trading company shares) are gaining relative attractiveness. Engage a STEP-qualified estate planner before making strategy changes.

12. Anti-avoidance: disguised remuneration

HMRC has invested heavily in anti-avoidance rules around remuneration since the early 2010s, and pension-adjacent arrangements that look like tax-avoidance vehicles attract close scrutiny. The principal regime is Part 7A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA), which charges PAYE Income Tax and NICs on "relevant steps" taken by a third party (typically a trust or offshore structure) in connection with an employee's earnings. The Loan Charge introduced by Finance (No 2) Act 2017 extended this back to 1999 to catch historic contractor loan schemes and Employee Benefit Trusts (EBTs).

What is safe. Contributions to a genuine HMRC-registered UK pension scheme (workplace DC, SIPP, SSAS) made by the employer in respect of an employee or director are explicitly carved out of the disguised remuneration rules. The wholly and exclusively test in BIM46035 governs CT deductibility but the Part 7A charge does not apply. SSAS structures that satisfy the standard loanback and property rules in PTM123100 and the wider Pensions Tax Manual are authorised. Pension recycling (using a PCLS to fund significantly increased contributions) is its own anti-avoidance rule under PTM133810 and is separate from Part 7A.

What is risky. Employer-financed retirement benefit schemes (EFRBS), unfunded unapproved retirement benefit schemes (UURBS), contractor loan arrangements, offshore trusts paying out as "loans" that are not realistically repayable, and non-UK pension schemes that fail the HMRC Recognised Overseas Pension Scheme conditions are all vulnerable to disguised remuneration challenges. Directors offered such arrangements - typically marketed as "tax-efficient" alternatives to a SSAS or SIPP - should treat them as high-risk and seek independent tax advice before participating. HMRC publishes a specific guidance page on disguised remuneration for owner-managed companies that should be the first reading before considering any non-standard structure.

Cross-references and modelling tools across the SalaryTax director-extraction stack:

Pension tax relief guide - sister page covering the full AA, taper, MPAA, LSA mechanics applicable to all UK pension savers.
Pension contribution calculator - model RAS, Net Pay or salary sacrifice contributions.
Pension annual allowance calculator - test AA, taper, MPAA and carry-forward against your figures.
Salary vs dividend calculator - optimal mix of director salary and dividend extraction.
Dividend tax calculator - dividend tax bands and effective rate.
Salary sacrifice calculator - full NIC and Income Tax modelling for director salary sacrifice.
Corporation Tax calculator - main rate, marginal relief band, small profits rate.
Director's loan account guide - s455 charge, write-offs, beneficial loan interest.
Business Asset Disposal Relief guide - 10% CGT on qualifying business sale.
Sole trader vs limited company - structure choice for early-stage businesses.
UK Corporation Tax rates guide - 19% / 26.5% marginal relief band / 25% main rate.
UK Inheritance Tax rules guide - nil-rate bands, residence nil-rate band, reliefs.
7-year IHT gift taper calculator - lifetime gifting outside the estate.
60% tax trap (£100k taper) - PA mitigation via pension.
£100k tax trap mitigation playbook - the extended pension and sacrifice strategy at £100k+.
High earner tax planning checklist - annual cadence for £100k+ taxpayers.

Frequently asked questions

How much can a Ltd company director contribute to a pension?: An owner-managed company can pay an employer pension contribution up to the director's available Annual Allowance for the tax year, which is £60,000 standard in 2026/27 plus any unused allowance carried forward from the previous three years (a theoretical £240,000 maximum). Employer contributions are not capped by relevant UK earnings, so a director on a £12,570 PAYE salary can still receive a £60,000 employer contribution. For the contribution to be deductible against Corporation Tax it must satisfy the HMRC "wholly and exclusively" test under BIM46035, meaning the total remuneration package (salary plus pension plus benefits) must be commercially justifiable for the work performed. Spouses on the company payroll need genuine duties documented or HMRC will disallow the deduction.
Are employer pension contributions deductible against Corporation Tax?: Yes, provided the wholly and exclusively rule in BIM46035 is met. An employer pension contribution paid in the accounting period reduces taxable profits by the contribution amount, saving Corporation Tax at the marginal rate of 25% (main rate), 26.5% (marginal relief band between £50,000 and £250,000 of profits) or 19% (small profits rate below £50,000). HMRC manual BIM46035 confirms employer pension contributions are revenue expenses deductible in the period paid. There is no spreading rule for "small" contributions (under £500,000 of incremental contribution vs the prior year), but very large one-off contributions may be spread over up to four periods under FA 2004 s197.
What is the tapered Annual Allowance and how do dividends affect it?: The tapered Annual Allowance reduces a director's £60,000 standard AA by £1 for every £2 of adjusted income above £260,000, down to a floor of £10,000 at adjusted income of £360,000 or more. Adjusted income includes salary, taxable benefits, employer pension contributions and dividend income. Threshold income (broadly total taxable income less the director's own pension contributions) must also exceed £200,000 for the taper to bite. Dividends count towards both threshold and adjusted income, which means a director taking £150,000 in dividends plus a £30,000 salary plus a £60,000 employer pension contribution has adjusted income around £240,000 and is below the taper - but the same director with £180,000 of dividends would cross £260,000 and lose AA.
What is a SSAS and how does it differ from a SIPP?: A Small Self-Administered Scheme (SSAS) is an occupational pension scheme set up by a limited company, with the directors typically acting as both members and trustees. It can have up to 11 members and is regulated under the Pensions Act 2004 with HMRC registration for tax relief. A SIPP (Self-Invested Personal Pension) is an individual personal pension wrapper. The key differences: a SSAS can lend up to 50% of net asset value back to the sponsoring employer (loanback), can pool member funds for joint investment, and can hold trustee-borrowed commercial property. A SIPP cannot make loanbacks to a connected company and each member's pot is segregated. SSAS setup and running costs are higher (£500 to £1,500 setup, £600 to £1,200 annual administration), so SSAS makes sense when fund value exceeds about £100,000 or where loanback or pooled property is the actual goal.
Can a SSAS lend money to the sponsoring company?: Yes, this is the SSAS loanback facility, governed by HMRC rules in PTM123100 and Schedule 30 to Finance Act 2004. To avoid being treated as an unauthorised payment (taxed at 40% to 70%), the loan must satisfy five conditions: maximum loan of 50% of the SSAS net asset value, maximum term of 5 years (one rollover of up to 5 years allowed if at least 50% of capital plus interest has been paid), commercial interest rate at least 1% above the average of six major bank base rates rounded up to the nearest 0.25%, equal capital and interest instalments at least annually, and security taken as a first charge over an asset worth at least the loan amount. Failures on any condition trigger an unauthorised payment charge plus a scheme sanction charge.
Can a SSAS or SIPP buy commercial property?: Yes, both wrappers can hold UK commercial property directly, and SSAS can buy property jointly with other members or with the sponsoring employer. The classic strategy is to use the pension to buy the trading premises and then lease them back to the company at a commercial market rent. The rent paid by the company is a deductible Corporation Tax expense (saving 25% CT in the main band) while the rent received by the SSAS or SIPP grows tax-free inside the pension wrapper. Capital growth on the property is also tax-free. The pension can borrow up to 50% of net asset value to fund the purchase. Residential property is not permitted (taxable property charges of up to 70% apply if breached) and the lease must be at arm's length with a RICS-qualified valuer setting the rent.
Is pension better than dividends for extracting profit from a Ltd company?: Below the Annual Allowance, pension extraction is materially more tax-efficient than dividends for owner-managed companies, especially for directors not yet wanting the cash. A £60,000 employer pension contribution costs the company £45,000 net of 25% Corporation Tax relief (in the main rate band) and lands £60,000 in the pension. The same £60,000 paid as a dividend faces Corporation Tax first (so the company needs £80,000 of profit to declare a £60,000 dividend after 25% CT), then 33.75% dividend higher rate or 39.35% additional rate, leaving the director with about £36,500 to £39,800 net. Pension wins by roughly 50% on a like-for-like basis. The trade-off is access: pension funds are locked until age 57 (rising to 58 from April 2028), while dividends are immediate cash.
Do employer pension contributions count against the tapered AA?: Yes. Employer contributions are included in both the pension input total counted against the Annual Allowance and the adjusted income figure used to test the taper. This is critical for directors: a strategy of "keep salary low, take the rest in dividends, plus a £60k employer pension contribution" can push a director with substantial dividends into the taper because the £60k employer contribution adds to adjusted income on top of the dividends. The way out is to keep total adjusted income below £260,000 (so the taper does not apply) or to use a SSAS where the contribution is structured as a property purchase by trustees rather than a member contribution if appropriate (a niche planning point - the AA still applies to any contribution made).
Are pensions inside or outside the Inheritance Tax estate?: Defined contribution pension pots are currently outside the Inheritance Tax estate, but this changes from 6 April 2027 under the Autumn Statement 2024 announcement. From that date, unused DC pension funds and lump-sum death benefits will be brought into the estate for IHT purposes, taxed at the standard 40% rate above the nil-rate band. Death before age 75 will still allow income drawdown or lump sums to be paid free of Income Tax to the nominated beneficiary, but the IHT layer applies before the funds leave the estate. Death after age 75 already triggers Income Tax at the beneficiary's marginal rate on any withdrawal, so post-2027 the combined IHT plus Income Tax effective rate on death-after-75 inherited pensions can reach 67% in the worst case. Directors with substantial pots should reassess pension vs ISA vs other wrappers before April 2027.
What is disguised remuneration and how does HMRC police it?: Disguised remuneration is HMRC's catch-all term for arrangements that route reward through a third party (often a trust or offshore structure) to avoid PAYE Income Tax and NICs on what would otherwise be ordinary employment income. The Part 7A ITEPA 2003 charging rules treat third-party payments to or for the benefit of an employee as employment income subject to PAYE in the period of the relevant step. Pension contributions made under genuine HMRC-registered schemes are explicitly carved out as authorised, but contrived arrangements using EBT loans, employer-financed retirement benefit schemes (EFRBS), or non-UK pensions that fail the HMRC overseas pension scheme conditions are vulnerable to challenge. The Loan Charge introduced in 2017-19 covered historic EBT and contractor-loan schemes back to 1999. Genuine SSAS and SIPP contributions paid by the sponsoring employer are not at risk; the risk is in artificial structures.
When does carry-forward expire?: Carry-forward of unused Annual Allowance lapses at the end of the fourth tax year. In 2026/27 (2026-27) you can use unused allowance from 2023-24, 2024-25 and 2025-26. The allowance from 2023-24 will permanently drop off at the end of 5 April 2027. Carry-forward is used in chronological order: current year first, then oldest carry-forward year, then next oldest, then most recent. Membership of a UK-registered pension scheme in each carry-forward year is required (mere membership is enough - no minimum contribution). A director planning a large one-off employer contribution following a business sale, dividend, or windfall should check carry-forward eligibility before the relevant year-end as the unused allowance is "use it or lose it".
Does the MPAA affect employer contributions from my Ltd company?: Yes. The Money Purchase Annual Allowance of £10,000 caps the combined total of all defined contribution pension input including employer contributions, once you have flexibly accessed any DC pension pot. A director who triggers MPAA by taking taxable income from a SIPP cannot then accept more than £10,000 a year of employer contributions into any DC scheme (including a SSAS holding only money market assets) without an AA tax charge. This is the single biggest planning trap for directors approaching semi-retirement: taking £1 of taxable drawdown to "test" the system permanently restricts the DC contribution headroom for any future re-engagement with the business. Defined benefit accrual outside the MPAA still uses the residual £50,000 alternative AA, but pure-DC SSAS and SIPP arrangements lose the headroom permanently.

Verify the figures

Pension tax relief overview: gov.uk/tax-on-your-private-pension/pension-tax-relief
Annual Allowance: gov.uk/tax-on-your-private-pension/annual-allowance
Tapered Annual Allowance worked examples: gov.uk/guidance/work-out-your-reduced-annual-allowance
HMRC Pensions Tax Manual (full reference): HMRC Pensions Tax Manual
Employer pension contribution deductibility (BIM46035): HMRC BIM46035
SSAS loanback rules (PTM123100): HMRC PTM123100
SSAS taxable property rules (PTM125100): HMRC PTM125100
Investment-regulated pension schemes (PTM121000): HMRC PTM121000
Disguised remuneration (Part 7A ITEPA, EIM45000): HMRC EIM45000
Pensions in the IHT estate from April 2027: gov.uk - Inheritance Tax on pensions
FCA register (verify a SIPP / SSAS adviser): FCA Register
STEP register (estate planners): STEP Society of Trust and Estate Practitioners
CIOT directory (chartered tax advisers): Chartered Institute of Taxation