Contractor Pensions

If you are a contractor, setting up a pension is not only important for retirement planning but also to reduce net profits in a business.

Contact Us

The value of pensions and the income they produce can fall as well as rise, you may get back less than you invested.

Tax treatment varies according to individual circumstance and is subject to change.

Business Property Relief Schemes invest in assets that are high risk and can be difficult to sell.

The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits.

Here we outline the flexibility that pensions can offer for Limited company contractors and how you can make the most of your annual income and save efficiently for retirement.

Contractor pensions flexibility

As a contractor / consultant through your limited company, a personal pension, SIPP or SSAS can provide you with corporation tax savings. If you make annual lump sum contributions from your Limited company to your pension, you will offset corporation tax by reducing taxable company profits whilst saving for retirement:

  • The annual pension allowance stands at £60,000 (for the 2024/25 tax year), so you can invest up to this level each year and benefit from tax relief on your contributions at your highest marginal rate.
  • Contractors with a large sum to invest can take advantage of ‘carry forward’ rules for previous tax years.
  • Dividends are subject to corporation tax as they are paid ‘after corporation tax’.
  • Pension contributions are not subject to corporation tax as they are paid before corporation tax is applied.
  • Contractors can pass on assets 100% free from inheritance tax to children via a limited company, subject to qualifying criteria, by way of business property relief (BPR).

Act now and reap the benefits later

Most people are not saving sufficiently for their retirement and a large proportion of the workforce now expect to have to work beyond the statutory retirement age to make up for a shortfall in their pension income.

As a contractor / consultant, if you put the right plans in place at a relatively early age you are more likely to retire comfortably at an earlier age and enjoy the tax benefits of running a Limited company and having personal pension.

Perhaps, the most important advice I give to my clients is to plan carefully and do not leave things to chance.

A CContractor Pensions