Pension planning for the self-employed

When taking the decision to go self-employed from an employed background, the loss of employee-related benefits can be substantial.

One particular area where loss could occur is pensions. Every employee in the UK should have a pension made available to them by their employer, with the employer contributing at least 3% of the employee’s salary into the employee’s pension.

When going self-employed, this is lost right away. Therefore, planning for retirement sooner rather than later can make a considerable difference to you in the long term. Whilst a lot of self-employed individuals consider their business to be their pension, diversifying into a pension can provide a tax-efficient source of income throughout retirement.

Any deposits made to a pension as a sole trader will be subject to tax relief at the contributor’s marginal rate of tax (e.g. 20/40/45%).

If you are the director of a Limited Company, you also have the option to make contributions directly into your pension from the company itself. This allows your contributions to be offset against the profits of the company for the corporate tax year, and in the process, reduces any potential corporation tax liability. This can be a highly efficient way to extract company profits, whilst minimising the tax liability – both as an individual and for the company.

Aside from this, pensions can also be efficient where an inheritance tax liability exists, as funds held in a pension will normally be out with your estate, and is therefore not subject to inheritance tax.


If you’re interested in finding out more about the information discussed in this article, get in touch with our Financial Adviser, Greg Davie, on or on 07862 258 405.

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