Selling your business? Why maximising pension contributions first could be highly efficient

If you’re thinking about selling your business, you’re likely considering the steps you can take to make the process as efficient as possible.

While much of the focus is often on structuring the sale itself, there are actions you can take beforehand that may also be valuable.

Increasing pension contributions from your business is one such strategy. Doing so can help you extract money from the business into your personal wealth in a highly tax-efficient way and could even improve the overall efficiency of your exit.

Read on to find out more about why maximising your pension contributions from your business could be efficient before a sale.

Using surplus cash from your business to make pension contributions can be highly efficient

You may have surplus cash left in your business before you complete a sale, and using it to make pension contributions can be one of the most effective ways to extract it tax-efficiently.

When your company pays directly into your pension, HMRC typically treats the contributions as an allowable business expense, meaning they can be deducted before Corporation Tax is applied.

Salary payments are also deductible for Corporation Tax purposes, but they incur employer National Insurance (NI), unlike pension contributions.

So, making additional contributions from your business can help move cash into your personal wealth before a sale without incurring additional business taxes.

As well as benefiting the business, this approach can improve your personal tax efficiency.

The Annual Allowance limits the amount you can contribute to your pension while receiving Income Tax relief. For most people in the 2025/26 tax year, this is £60,000 or 100% of your earnings, whichever is lower. You may also be able to use unused Annual Allowance from the previous three tax years, using the carry-forward rule.

However, when making contributions from a limited company, the earning restrictions don’t apply. This means you may still be able to efficiently contribute up to £60,000 a year even if your personal earnings are less than that.

So, by utilising the full Annual Allowance and making use of the carry-forward rule, you could make a potentially significant contribution to your pension from your business, while ensuring the money remains tax-efficient.

Reducing your income for additional pension contributions could lower your Capital Gains Tax

While much of the benefit of making pension contributions comes from extracting value from your business efficiently before the sale, they can also influence how your gains are taxed.

When you sell your business, any profits you make will be charged Capital Gains Tax (CGT), unless they’re below the CGT Annual Exempt Amount of £3,000 (2025/26).

Business Asset Disposal Relief (BADR) can reduce CGT to 14% (rising to 18% from 6 April 2026), but not all businesses and assets qualify. Factors such as ownership structure, the nature of the business or assets, and how long you’ve held your shares can all affect eligibility, and there is a lifetime limit of £1 million.

So, if you’re planning a sale in the current tax year, adjusting how you take income could help reduce the CGT you pay.

For example, one option is to reduce your salary in favour of employer pension contributions. While pension contributions don’t directly reduce the gain itself, they can affect how that gain is taxed by reducing your taxable income.

For the 2025/26 tax year, the main rates of CGT are:

18% for basic-rate taxpayers
24% for higher- and additional-rate taxpayers

Lowering your taxable income could mean more of your gain falls within the basic-rate band and is taxed at a lower CGT rate.

However, it’s important to remember that pension funds are not usually accessible until later life, so this approach needs to be considered alongside your immediate needs.

A financial planner can help you plan your business sale efficiently and effectively

There are many moving parts to consider when selling your business, and it’s important to plan for them early to ensure you remain as tax-efficient as possible.

A financial planner can help plan every element of the sale, including how and when to make additional pension contributions and transfer cash from the business to your personal wealth.

By planning early, you can protect more of the value you’ve built up and make the most of the proceeds once the transaction is complete.

To speak to a financial planner, get in touch.

Email [email protected] or call us on 01625 466360.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.