If you have used up your personal tax allowance, your dividend tax allowance and your basic rate tax band and do not wish to incur the higher rate of tax then you could look at making contributions to a private pension directly from your limited company.
The current annual pension contributions limit is £40,000 which means your company could transfer £40,000 to your private pension per year.
Your company will get Corporation tax relief on this contribution at the current Corporation tax rate of 19%. This means although your company will have transferred £40,000 it's Corporation tax liability will decrease by £7,600 (19% of £40k) so the true cost of the £40,000 contribution is only £32,400 and your personal wealth increases by £40,000.
In addition to the Corporation tax relief, you do not have to pay income tax on the contribution as it has been transferred directly into your private pension and not to you. If you had taken the £40,000 as a higher rate dividend then you would have to pay income tax at 32.5% = £13,000 leaving you with an increase in your personal wealth of only £27,000.
Pension contribution directly from your limited company - company funds decrease by £32,400 for a £40,000 increase in your personal wealth.
Higher rate dividend drawn - company funds decrease by £40,000 for a £27,000 increase in your personal wealth.
To speak to our specialist pensions adviser drop Christopher Joynes an email at firstname.lastname@example.org there are no upfront fees so it is completely free to have a personal in-depth consultation, get advice on saving for your retirement and maximising your tax efficiency.