Pension vs dividends calculator for company directors
You have profit in your company you want to save for the future. Take it out as a dividend and invest it yourself, or have the company pay it straight into your pension? Enter your numbers and see what each route grows to, after every tax along the way, with the full working.
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The amount of pre-tax company profit you want to put towards your future each year. Both routes start from exactly this figure, so the comparison is fair: the same cost to the company, two different journeys. Pension contributions from all sources are normally limited to £60,000 a year.
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The yearly amount above is split into equal payments at the start of each period. Paying in earlier and more often means money starts growing sooner, so monthly payments grow slightly less than one payment at the start of the year, and slightly more than one at the end. Both routes use the same timing, so the comparison stays fair.
Up to 50.
After charges.
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We use the same growth rate for both routes, so the only difference is tax. 5% a year after fees is a common planning assumption for a mixed investment portfolio over the long term, but returns are not guaranteed and investments can fall as well as rise.
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This is the rate on the extra slice of profit you are deciding about. Between £50,000 and £250,000 of profit, marginal relief means each additional pound is effectively taxed at 26.5%, which is higher than the 25% main rate. If you are not sure, use the rate from your last Corporation Tax return or ask your accountant.
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The rate you would pay on these particular dividends. Dividends within the basic rate band (total income up to £50,270) are taxed at 10.75%. If you already take the usual £12,570 salary and £37,700 of dividends, any extra dividends are taxed at 35.75%, so choose the higher rate. Our dividend tax calculator tells you exactly which band you are in.
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A quarter of a pension can normally be taken tax-free (up to £268,275 in total). The rest is taxed as income when you draw it. Most people pay less tax in retirement than while working, often 20%, which is a big part of why pensions are efficient. The full State Pension already uses almost all of the £12,570 Personal Allowance.
Tailor it to you: where the dividends are invested
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In an ISA, growth and withdrawals are tax-free, and you can pay in up to £20,000 a year. In an ordinary investment account, profit when you sell is subject to Capital Gains Tax above the £3,000 annual exemption, at 18% or 24%.
- Both routes start from the same pre-tax profit each year, split into equal payments at the start of each period you choose, growing at the same rate.
- Pension route: an employer contribution from the company, deductible for Corporation Tax, no National Insurance and no personal tax going in. Normally limited to £60,000 a year from all sources.
- On withdrawal, 25% of the pension is tax-free (capped at £268,275); the rest is taxed at the single retirement rate you choose.
- Dividend route: Corporation Tax, then dividend tax, then invested. In a general account, gains are taxed once on sale after the £3,000 exemption; tax on investment income along the way is ignored.
- Pensions can normally be accessed from 55, rising to 57 on 6 April 2028. ISA money can be taken at any time.
- Tax rules can change before you retire. Figures are worked to the penny: each amount is rounded to the nearest penny as it is calculated, and every later figure is built from those amounts, so every line adds up exactly. HMRC's own systems may round some figures down to whole pounds, which can differ by a few pence.
Route A
Company pays into your pension
yours after tax when you take it
- Invested each year (no tax going in)
- £10,000.00
- Pension pot at the end
- £347,192.51
- Tax-free lump sum (25%)
- £86,798.13
- Income Tax on the rest (20%)
- −£52,078.88
- Yours after tax
- £295,113.63
Route B
Take dividends and invest
yours tax-free, available any time
- Profit set aside each year
- £10,000.00
- Less Corporation Tax (19%)
- −£1,900.00
- Less dividend tax (10.75%)
- −£870.75
- Invested each year
- £7,229.25
- Investments at the end
- £250,994.17
- Capital Gains Tax on sale (18%)
- −£0.00
- Yours after tax
- £250,994.17
The £7,229.25 invested each year is more than the £20,000 ISA allowance, so the excess would have to go into a taxable account in reality.
Note: £10,000.00 a year is above the £60,000 pension annual allowance, so in reality the excess would face a tax charge or need carrying forward unused allowance from earlier years.
How each pot grows (before tax on withdrawal)
This is an illustration of tax, not investment advice. Growth is not guaranteed and investments can fall as well as rise. Pension money is locked away until your minimum pension age. For decisions about pensions or investments, speak to a regulated financial adviser.
Show the workings
Route A: company pays into your pension
Route B: take dividends and invest
Difference: £295,113.63 − £250,994.17 = £44,119.46 in favour of the pension.
Calculated at sjecapital.co.uk/pension-vs-dividends-calculator. Illustrative, not financial advice. SJE Capital Limited, company no. 15837169.