3 clever ways you could use your pension to supercharge your business

Your pension is a terrific method of saving for the future. The combination of potential investment returns and tax relief on offer can help you build a pot that could make a significant contribution towards your retirement lifestyle.

But what you may not be aware of is how business owners can use their pensions to supercharge their business.

Provided that you have a self-invested personal pension (SIPP) or a small self-administered scheme (SSAS), you can use your retirement funds to help give your business a boost in specific areas.

Here are just three clever ways you could use your pension to boost your business.

  1. Reducing your tax bill

Firstly, you may be able to use your fund to reduce how much tax you owe in your business.

Contributions you make to your pension will receive tax relief at your marginal rate of Income Tax. In essence, this means that a £100 contribution only “costs”:

  • ÂŁ80 for basic-rate taxpayers
  • ÂŁ60 for higher-rate taxpayers
  • ÂŁ55 for additional-rate taxpayers.

Crucially, there can also be tax advantages if you make contributions to your pension as your own employer.

Making pension contributions from pre-taxed company income will receive tax relief, which could save you on your Corporation Tax bill. Corporation Tax in the 2022/23 tax year is 19% and is set to rise to 25% in April 2023, so this could represent notable savings.

Additionally, you won’t have to pay National Insurance (NI) on pension contributions. The rates of NI rose by 1.25 percentage points in April 2022, meaning this could save you 15.05% in NI payments in the 2022/23 tax year.

Business margins can be tight at the best of times. So why not make the most of your pension to reduce your business’s tax liability?

2. Holding your business premises through your pension

The next way you could use your pension is by moving and holding your business premises within it.

If your company already owns the premises you operate at, you could essentially use your pension funds to buy it off the business.

Doing so comes with two key advantages:

  1. It can provide a lump sum injection of cash into the business. You could then use this money in any way you choose, from improving your products and services to hiring new talent.
  2. You can again take advantage of pensions’ tax efficiency. You’d no longer have to worry about Capital Gains Tax (CGT) when selling the premises down the line, and there’d be no concerns over Inheritance Tax (IHT) if your beneficiaries inherit your pension on your death. One thing to bear in mind is that you may have to pay CGT on any gains in value of the property since you first bought it when you move it into your pension. But, once the property is within the confines of your pension, you won’t need to worry about this again.

Similarly, if you’re renting the property from a landlord, you could use your pension funds to buy it off them and hold it yourself.

Doing so would give you greater control over where your business operates. Additionally, you could continue paying rent from the business into your pension, providing another stream of income for your retirement pot.

Whether you already own your business property or not, buying and holding it in your pension could be an effective, tax-efficientchoice for you.

3. Borrowing or withdrawing funds to use directly in the business

Finally, one alternative way you can use your pension to help your business is in borrowing or withdrawing funds from it to use directly on whatever you’d like.

Depending on how you do this and the type of pension you have, this will either be considered a “loan-back” or a “director’s loan”.


Loan-backs are an option available to SSAS pensions, not from SIPPs, and can be highly effective for injecting cash into your business.

By borrowing money from an SSAS pension, you can boost your company’s cash flow and provide money for large purchases that could help your business grow.

This can also be better for you than taking out a bank loan, allowing you to design more favourable terms for the loan while also being able to access it quicker.

Bear in mind that there are some key rules you must follow when borrowing from your pension.

From a minimum interest rate and maximum terms of the loan to how much you’re allowed to borrow from your pension, these rules ensure that loans from pensions are only taken out for legitimate purposes.

Make sure you speak to an expert before you use a loan-back so you know that you’re complying with these rules.

Director’s loan

Alternatively, if you’re over age 55, you could withdraw your 25% tax-free lump sum from your pension and make a director’s loan to your business. This can be done with either a SIPP or SSAS pension.

This would again give you a lump sum of cash to use as you wish in the business, and it also comes with other key advantages, including:

  • No Corporation Tax to pay, as the loan repayments can be considered a “business expense”
  • Being able to choose to charge interest on the loan, offering another alternative stream of income to your pension. However, you would have to pay 20% Income Tax at source on this interest.

It may be worth taking out business loan protection if you’re interested in this strategy, protecting the business in the event that you unexpectedly die while the debt is being repaid.

You should also only choose to make a director’s loan if you’re confident that withdrawing money from your pension won’t harm your retirement lifestyle.

Speak to us

If you’d like to find out how you could use your pension to supercharge your business finances, get in touch with us at Henwood Court.

We can show you specifically how your retirement funds can make a huge difference in your company.

Email info@henwoodcourt.co.uk or call 0121 313 1370 to find out more today.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

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