Family Member Pension Contributions: 2025/26 Guide

Family Member Pension Contributions: A Tax-Efficient Strategy for Business Owners

Family member pension contributions can be a powerful and legitimate way for business owners to reduce tax while supporting the long-term financial future of their family.

When structured correctly, pension contributions made for spouses or other family members who work in the business can provide significant corporation tax savings and boost retirement provision at the same time.

However, HMRC rules must be followed carefully. In this article, we explain how family member pension contributions work, what has changed for the 2025/26 tax year, and how this strategy fits into effective small business pension planning, particularly for business owners seeking Chafford Hundred pension advice.

What Are Family Member Pension Contributions?

Family member pension contributions occur when a business makes employer pension contributions on behalf of a family member who is employed by the company.

This could include a spouse, civil partner, or adult child who genuinely works within the business.

These contributions are treated as an allowable business expense, provided they meet HMRC’s “wholly and exclusively” test for business purposes.

When used correctly, they can be more tax-efficient than salary or dividends.

Infographic explaining family member pension contributions for small businesses, showing tax benefits, 2025/26 pension rules, HMRC dos and don’ts, and Trueman Brown contact details.

When Are Family Member Pension Contributions Allowed?

HMRC allows family member pension contributions when:

  • The family member is a genuine employee or office holder

  • Their role and responsibilities are real and clearly defined

  • Total remuneration (salary + benefits + pension) is commercially justifiable

  • Contributions are paid directly by the employer

If pension contributions are excessive compared to the work performed, HMRC may challenge the deduction.

Family Member Pension Contributions and 2025/26 Pension Rules

The 2025/26 tax year retains several important pension allowances that affect pension contributions:

  • Annual Allowance: £60,000 per individual

  • Carry Forward: Unused allowance from the previous three tax years can still be used

  • Money Purchase Annual Allowance (MPAA): £10,000 (if triggered)

  • Lifetime Allowance: Abolished, replaced by lump sum limits

Although the Lifetime Allowance no longer applies, tax-free lump sums are now capped by the Lump Sum Allowance (£268,275) and Lump Sum and Death Benefit Allowance (£1,073,100). T

his makes planning even more important as part of wider small business pension planning.

Why Family Member Pension Contributions Are Tax-Efficient

Family member pension contributions offer several tax advantages:

Compared to dividends, pensions often provide superior long-term value.

Family Member Pension Contributions vs Salary or Dividends

When deciding how to remunerate family members, family member pension contributions are often more efficient than increasing salary or dividends:

  • Salary attracts income tax and National Insurance

  • Dividends are paid from post-tax profits

  • Pension contributions are usually deductible before tax

This makes pensions a cornerstone of effective small business pension planning.

Common HMRC Risks to Avoid

To keep family member pension contributions compliant:

  • Do not overpay contributions without justification

  • Keep job descriptions and employment contracts up to date

  • Ensure pension levels reflect the role performed

  • Document why the contribution is commercially reasonable

Professional Chafford Hundred pension advice can significantly reduce the risk of HMRC enquiries.

How Trueman Brown Can Help With Family Member Pension Contributions

Getting family member pension contributions right requires careful planning, accurate payroll treatment, and up-to-date tax knowledge.

At Trueman Brown, we help business owners structure pension contributions correctly, maximise tax relief, and stay fully compliant with HMRC rules.

Our services include:

  • Reviewing family employment arrangements

  • Designing tax-efficient pension strategies

  • Integrating pensions into wider small business pension planning

  • Providing tailored Chafford Hundred pension advice

To speak to us directly:

Frequently Asked Questions: Family Member Pension Contributions

Can I make pension contributions for my spouse?

Yes, contributions are allowed if your spouse is genuinely employed and the total package is commercially reasonable.

Do family members need to earn £60,000 to receive that level of pension contribution?

No. Employer pension contributions are not limited by salary, but must still be justifiable for the role performed.

Are family member pension contributions subject to National Insurance?

No employer or employee National Insurance applies to employer pension contributions.

Can contributions be challenged by HMRC?

Yes, if they are excessive or not “wholly and exclusively” for business purposes. Proper advice reduces this risk.

Do the 2025/26 rules make pensions more attractive?

Yes. With the Lifetime Allowance removed, family member pension contributions are even more valuable when planned correctly.

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