4.4 Directors - Optimisation

4.4 The Director’s Blueprint – Optimising Profit Extraction

For the business owner, the pension is more than a savings account; it is a strategic business asset. This chapter outlines how to structure your extractions for maximum efficiency.

1. The Strategy Hierarchy

For most directors, the most efficient "order" for taking money out of the business is:

1. Salary: Up to the National Insurance Primary Threshold (£12,570) to secure your State Pension years without paying NI.

1. Dividends: Up to the Higher Rate threshold (£50,270) to utilise the lower dividend tax bands.
2. Pension: Any "excess" profit should ideally be swept into an employer pension contribution to avoid the 33.75%+ higher-rate dividend tax and 25% Corporation Tax.
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2. The Annual Allowance & Carry Forward

The standard allowance for 2026/27 is £60,000. However, directors can use "Carry Forward" to mop up unused allowances from the previous three years.

Total potential injection for a director with no prior contributions: £240,000.

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Caution‍

To use Carry Forward, you must have been a member of a registered UK pension scheme during the earlier years you're claiming from—even if you didn't actually make any contributions at the time.

We strongly recommend taking professional advice in this area especially if you are subject to tapering rules.  Getting this wrong could result in a big tax charge!

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3. Advanced Vehicles: SIPP vs. SSAS

While a SIPP (Self-Invested Personal Pension) is perfect for simple, low-cost investing, many directors in 2026 are looking at SSAS (Small Self-Administered Schemes) for business growth.

• The SIPP: Great for "set and forget" investing in stocks and shares.
• The SSAS: The "Entrepreneur’s Pension." It allows you to loan up to 50% of the pot back to your company for growth, or use the pot to buy your commercial premises, paying the rent back into your own pension rather than to a third-party landlord.
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4. The High-Earner Trap (Tapered Allowance)

If your "Adjusted Income" (total income plus employer pension contributions) exceeds £260,000, your £60k allowance begins to taper down. For every £2 you earn above this, you lose £1 of allowance, down to a minimum of £10,000.

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Action Plan: Your Year-End Checklist (26/7 Example)

• [ ] The Profit Sweep: Check your year-end profit projections. Could a pension contribution pull your company out of the 25% "Main Rate" and back toward the 19% "Small Profits" rate?
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• [ ] Carry Forward Audit: Have you used your 2023/24 allowance? If not, it disappears forever on 5 April 2027.
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• [ ] Check NI Thresholds: Ensure your salary is high enough to count for the State Pension but low enough to avoid unnecessary NI.
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• [ ] Review Property: If you are paying rent for your office or warehouse, could your pension own that building instead?

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