Generally, via your limited company. An exaggerated example explains why.
Imagine it’s the evening of the last day of your company year, and you’re so keen to get your year-end accounts done that they’ve been drafted already. You can see you’ve got £10,000 of profits. You’d like to get that into your pension pot. There are two ways you could achieve that.
The first is for your company to make an employer contribution directly to your pension fund of £10,000. That reduces the company profits and tax bill to zero (if you do it before midnight, anyway!), and gets £10,000 into your pension pot at a cost of £10,000.
The second is to take a dividend and make the pension contribution yourself. If you decide to do that, you know that the company will have £1,900 of corporation tax to pay on its £10,000 of profits, so you take the maximum legally permitted dividend of £8,100, once more leaving the cupboard bare. You contribute that £8,100 to your pension personally. There’s basic rate tax relief on it, which means that the government gives the pension company another £2,025. You’ve got £10,125 in your pension fund - that’s better, right? It is until you do your tax return and have to pay tax on the dividend. Assuming it sits in your basic rate tax band you’ll pay £700 of tax on it, so actually it’s cost about £10,700 to get that £10,125 into your pension pot (and there’s a similar marginal cost if the dividend is taxed at higher rates too, as higher dividend tax and greater tax relief cancel each other out).
One small caveat. If you’re thinking of applying for a mortgage or a remortgage, you might choose to take higher dividends and make personal contributions, even though you’ll wind up a bit poorer that way. That’s because it will maximise your personal taxable income, and that’s what a lender looks at when deciding how much to lend to you. But if you’re looking for the biggest pension pot at the lowest cost, company contributions are the way to go.
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