Picking A Pension & Making The Most Of It

featured image

Being a contractor or freelancer, it’s important to have funds available in your bank account, just in case. However, that doesn’t mean you can’t make other types of savings, such as pensions. 

The day you finally get to take a dip from the pot may be far away, but the future is important. Although being self-employed means you can’t benefit from employer contributions, there are numerous ways to economise your pension savings.

Benefit from the annual allowance and tax relief

Did you know that you can place £40,000 into your pension each year, free from income tax? This is the ‘annual allowance’, and it doesn’t need to be made up of your earnings. For example, you can contribute money from selling a high-value asset or any savings in your bank account.

You can claim tax relief as well. For example, if you pay tax at a basic rate, then for every £100 you pay, HMRC contributes a further £25. What’s more, if you haven’t taken advantage of the annual allowance and tax relief in previous years, you can carry the unused allowances for the last three years over. 

Make contributions via your spouse

If your spouse has a role within your company, and is therefore on the payroll, then up to 100% of their salary can be paid into a pension scheme.

In order to produce the maximum tax relief, it’s best to pay contributions on behalf of whoever earns the most. It’s also necessary to ensure that your spouse’s role is actually a job they are paid for – if they’re not truly doing work for your business, then HMRC may prosecute.

Place business premises into your pension

If you ever need to buy business premises, then these can be purchased via a pension scheme. In order to do this, there must be sufficient funds in a self-invested personal pension (SIPP). If the amount required isn’t there, then you borrow up to 50% of its net value, as well as using money from other pensions.

Once bought, you’ll need to pay market-value rent to the SIPP – undervaluing it can result in tax bills of 55%. Therefore, ensure it’s accurately estimated, and you’ll benefit from the tax efficiency.

You’ll contribute sizeable pension payments, and won’t be required to pay corporation, income or capital gains tax.

Withdraw for tax relief

Over 55s can withdraw funds from their pension, though you may not see the point if your retirement plans are in the distant future. However, those in the higher or additional bands can enjoy tax relief when withdrawing pension money; with 75% being tax-free.

A higher tax rate payer, ordinarily, would be required to pay 40% of £1200 into a pension, leaving them with £720. However, if they take it out, they’ll only pay £300, offering them a higher amount of £900. It’s worth noting that once you start the process of taking funds out of your pension, the annual allowance is reduced to £10,000.

Use a low-cost pension

There are multiple low-cost pension schemes available, such as Nest which is backed by the government. They only charge 0.3% per year to members, compared to a typical scheme’s 1% fee. Whichever pension you choose, you’ll need to ensure you make the most of it by being tax efficient.

Working out the best ways to minimise your tax bill isn’t easy for those who aren’t accountancy experts. That’s where Bright Ideas can help. We deal with the calculations, so you don’t waste time figuring out the numbers. To book a FREE consultation with our experts, contact us today on 0161 669 4221 or info@biaccountancy.com.

Posted in Blog and tagged pension scheme, pension tax, pensions.



  • After trying two other accountancy firms, which made my start in running a business MORE difficult than it needed to be, I am very pleased with the advice and support provided by BI Accountancy. I get very prompt responses to queries, with good explanations, that I have confidence in.

    Kate Farley
    Kate Farley
  • Michael and the BI team initially restructured my Freeagent account to get things in order. They also taught me how to properly utilise the software. Since then they have been responsive and proactive. Can’t recommend them enough.

    Col Skinner
    Col Skinner
  • Thank you to Mike for educating me on the world of accounting and managing my finances efficiently. I have found your service to be excellent. I really appreciate your timely response rate and friendly yet professional nature, you have been a pleasure to deal with

    John McNaughton
    John McNaughton
  • Michael has always been a friendly voice on the phone when I require help on my accounting needs. Emails are always answered promptly and advise always given when needed.

    Samuel Clarke
    Samuel Clarke
  • Since transferring over to the accountancy, my needs have been met efficiently, effectively and professionally.

    Matthew Lewis
    Matthew Lewis


Please add your name and email address to get your free download.

* Required field

* Required field