Company pension contributions are highly tax efficient. If you’ve maxed out your contributions and you want to begin adding to your spouse’s pension pot. Can your company make the contributions or do you need to pay out of your own pocket?
Employ your spouse
A simple way to make this arrangement tax efficient is for your company to employ your spouse. This could be as a fellow director or an administrative position if a role in the trade itself is unsuitable. The overall remuneration package, including pension contributions, must be in line with other staff in comparable roles.
Employer contributions are not restricted to the level of earnings and as such your company can make a larger contribution to your spouse’s pension.
Shareholder not employee
Tip. Alternatively, if you transfer just a small number of ordinary shares to your spouse and the company pays the £3,600 annual contributions, it counts as a distribution, which is taxed at dividend tax rates.
If your spouse has no other income or is a basic rate taxpayer then the distribution will either be tax free or taxed at 10.75%.
Example. Adam transfers 1% of his company’s ordinary shares to his wife Eva. Eva has no taxable income and therefore the maximum that can be paid into her pension for 2026/27 is £3,600. The company makes a £3,600 payment into Eva’s pension. The company doesn’t get any corporation tax relief for the payment. As Eva has no taxable income, her personal allowance covers the payment, making it tax free.
Having your company pay pension contributions for your spouse isn’t tax efficient as it counts as your taxable earnings. To achieve tax efficiency you can employ your spouse in the business to get the exemption for employer contributions, or transfer some of your shares to them to benefit from dividend tax rates.
Getting the structure right is key to making sure contributions to your spouse’s pension are as tax-efficient as possible, whether that’s through employment or a share transfer arrangement. Every situation is different, and getting professional advice can help you avoid unnecessary tax charges while maximising what goes into your spouse’s pension pot.
Get in touch with our team today to discuss the best approach for your circumstances.