UK Director Pension Strategies 2026/27: Employer Contributions and SSAS

Q Why is an employer pension contribution tax-efficient for directors?

A contribution by the company to a registered pension scheme is not taxable on the director (ITEPA 2003 s.308) and is disregarded from earnings for Class 1 NI (Social Security (Contributions) Regulations 2001, Sch 3 Part VI para 2), so neither employee NI nor the 15% employer NI applies. For the company it is normally a deductible expense if paid wholly and exclusively for the trade (FA 2004 s.196, CTA 2009 s.54; HMRC BIM46035). So £10,000 into a pension costs the company £7,500 after CT relief at the 25% main rate, or £8,100 at 19%. The cost of this is access: the money stays in the pension until minimum pension age, and withdrawals beyond the tax-free lump sum are taxed as income.

Q How much can the company contribute?

Employer contributions are not limited by the director's salary, but all contributions count towards the annual allowance, £60,000 for 2026/27 (gov.uk). Above it the excess is taxed on the director through the annual allowance charge. Personal contributions are different: tax relief on them is limited to your relevant UK earnings (or £3,600 gross if higher), and dividends are not earnings. HMRC can challenge a contribution where the whole remuneration package is excessive for the work the person does (BIM46035).

Q How does carry forward work?

If you use all of this year's annual allowance, you can carry forward unused allowance from the previous 3 tax years (gov.uk; FA 2004 s.228A), using the earliest year first; you must have been a member of a registered scheme in those years. Worked example: unused allowance of £40,000 (2023/24), £30,000 (2024/25), £40,000 (2025/26) gives £110,000 to carry forward, so up to £170,000 can be contributed in 2026/27 without a charge. Carry forward cannot be used to exceed the £10,000 money purchase annual allowance once that applies.

Q What is the tapered annual allowance?

If your threshold income is over £200,000 and your adjusted income is over £260,000, the allowance falls by £1 for every £2 of adjusted income above £260,000, to a minimum of £10,000 at £360,000 (gov.uk; FA 2004 s.228ZA). Adjusted income includes employer contributions. Worked examples, assuming threshold income is above the limit: £280,000 adjusted income gives £50,000; £340,000 adjusted income gives £20,000; £400,000 adjusted income gives £10,000. Dividends count towards both measures.

Q SIPP vs SSAS - which for directors?

A SIPP is an individual personal pension with a wide investment choice. A SSAS is a small occupational scheme set up by the company, usually for its directors. The practical difference that matters most to directors is that a SSAS can lend to the sponsoring employer as an authorised employer loan (FA 2004 s.179); a SIPP cannot. Both can buy commercial property, and both are restricted from holding residential property and most tangible moveable property without tax charges (FA 2004 Sch 29A). Costs vary by provider, so compare quotes.

Q How does a SSAS loan to the company work?

Under FA 2004 s.179 a loan to a sponsoring employer is authorised only if: it is no more than 50% of the scheme's funds and assets immediately before the loan; it is secured by a charge of adequate value; the interest rate is at least the rate prescribed by regulations; it is repaid within five years (unless postponed under the rules); and the amount repaid in each loan year is at least the required amount. Breaches give rise to unauthorised payment charges under Sch 30. Take advice from the scheme administrator before lending.

Q Can a pension buy commercial property?

Yes. SIPPs and SSASs can buy commercial property such as offices, shops and industrial units, and can let it to the director's company at a market rent; rent and gains inside the pension are not taxed. Residential property is "taxable property" for investment-regulated schemes, which brings tax charges (FA 2004 Sch 29A). A money purchase arrangement can borrow no more than 50% of its net value (FA 2004 s.182). VAT can apply where the property has been opted to tax. Specialist advice is needed.

Q What about the tax-free lump sum?

You can usually take up to 25% of a pension as a tax-free lump sum, capped at the lump sum allowance of £268,275 across all your pensions unless you have a protection (gov.uk). On a £1,500,000 pot, 25% would be £375,000, so the allowance, not the 25%, is the limit. A separate lump sum and death benefit allowance of £1,073,100 covers tax-free lump sums including certain death benefits. You can take the lump sum in stages as you access each part of the pension.

Q Should a director take salary and sacrifice it into a pension?

Salary sacrifice turns salary into an employer contribution, saving the director's Income Tax and NI and the company's 15% employer NI on the amount sacrificed. For a director-shareholder the simpler route is usually a direct employer contribution instead of extra salary. A salary at the Personal Allowance (£12,570) costs £1,136 in employer NI if the company cannot claim the Employment Allowance. From April 2029, only the first £2,000 a year of employee contributions through salary sacrifice will be exempt from NI; Income Tax relief is unchanged (HMRC).

Q Can pension contributions reduce tax before closing the company?

A contribution reduces the company's taxable profit for the period in which it is paid, so it saves CT only against profits of that period: profits already retained have borne CT, and paying them into a pension later saves no further CT. On a solvent liquidation, capital distributions can qualify for Business Asset Disposal Relief at 18% from 6 April 2026, up to a £1,000,000 lifetime limit, if the conditions are met (gov.uk). Normal minimum pension age is 55 and rises to 57 on 6 April 2028 (FA 2022 s.10).

Q How does the April 2027 IHT change affect director pensions?

Finance Act 2026 ss.66-70 bring most unused pension funds and death benefits into the value of an estate for Inheritance Tax, with s.71 setting commencement for deaths from 6 April 2027. Until then, pension funds are generally outside the estate. Income Tax on inherited pensions where the member died at 75 or over continues to apply, so beneficiaries can face both. HMRC's policy paper says the existing exemptions for death benefits passing to a surviving spouse or civil partner, or to a registered charity, are maintained, and death in service benefits are excluded.