Paying a Mortgage via a Pension (SIPP) – Key Strategies

Using a pension to pay your mortgage as a limited company director or self-employed professional is a strategic approach that requires careful planning. Here’s how it works:

Employer SIPP Contributions to Reduce Tax & Free Up Cash

• Instead of withdrawing more salary or dividends (which are taxable), your limited company can contribute directly to your SIPP.
• This reduces corporation tax (19% or 25%) and National Insurance, allowing you to keep more of your earnings.
• The savings from tax efficiency can be redirected to mortgage payments.

🛠️ Example:

• Your company contributes £40,000 to your SIPP instead of paying it as salary.
• This saves you up to £15,000 in income tax & NI, freeing up extra cash for mortgage payments.

Using a SIPP to Buy Commercial Property & Pay Rent to Your Pension

• If you own a business that operates from a commercial property (office, warehouse, etc.), your SIPP can buy the property.
• Your business then pays rent to your SIPP instead of a landlord.
• Rent is tax-deductible for the company and grows tax-free inside the pension.
• Over time, this helps build up a pension fund that could later be used to clear your mortgage.

🚨 Note:

• Residential property is not allowed in a SIPP.
• This works only for commercial property investments.

Drawing Pension at 55+ to Pay Off Mortgage

• From age 55 (57 in 2028), you can access 25% of your pension tax-free.
• The remaining 75% is taxed as income, but if structured correctly (e.g., keeping withdrawals within the basic tax band), it can be tax-efficient.
• If your mortgage runs until retirement, your SIPP could provide a lump sum to clear it.

🛠️ Example:

• At 55, you have a £300,000 SIPP.
• You withdraw £75,000 tax-free and use it to clear or reduce your mortgage.
• The remaining balance continues to grow for later years.

🚀 Best Strategy for Limited Company Directors

1. Maximize Employer SIPP Contributions to reduce tax.
2. Use Tax Savings to Pay Down Your Mortgage Faster.
3. If You Own a Business Property, Buy It via a SIPP to benefit from rental income & tax savings.
4. Plan for Tax-Free Withdrawals at 55+ to clear your mortgage or invest elsewhere.