For 2025/26, Directors with no other income should look to pay themselves the optimum Directors salary of £12,570 per annum, which equates to £1,047 per month or £241 per week, with any additional income being paid as dividends. 

£12,570 per annum is the most tax efficient amount as it ensures that the Director qualifies for the state pension but does not need to pay any National Insurance (NI) employee contributions and PAYE. 

In addition to this, salary paid is a tax-deductible expense. With corporation rates at 19%, 25% and 26.5%, on a salary of £12,570 per Director, the company will save corporation tax of anywhere between £2,388 and £3,331. There is no such saving if dividends are paid. 

If the Director has other income such as pension / rental income or another salary, it’s in their best interest to pay a £nil salary. It’s also not advisable for Directors to pay themselves this amount if they have reached the number of qualifying years for state pension.  

There are also situations where a higher salary would be more appropriate. These include: 

• If Directors have a contract of service as they must legally be paid the National Minimum Hourly Wage which would be higher than £12,570 per annum 

• If the company has made losses in the past as dividends can only be paid out if the company has profit and loss reserves 

• If there may be Employment Allowance available 

• If the Director has reached pension age and therefore does not incur Employee NI 

• If, for the purpose of a mortgage, the bank or building society insists that the Director receiving a high level of fixed salary (although most providers consider Dividends for Directors/Shareholders as being part of remuneration) 

The Employment Allowance allows a company to reduce their Employer NI liability by up to £10,500 per annum, a significant increase from the 2024/25 tax year which was only a £5,000 reduction. 

Unfortunately, the Employment Allowance is not available to all businesses. A company must have multiple Directors or employees to be able to make the claim. Read more about Employment Allowance here. 

Should an Employment Allowance claim be available, then the Employer NI of £1,136 would reduce down to £nil.

There are also situations where a higher salary would be more appropriate. These include: 

• If Directors have a contract of service as they must legally be paid the National Minimum Hourly Wage which would be higher than £12,570 per annum 

• If the company has made losses in the past as dividends can only be paid out if the company has profit and loss reserves 

• If there may be Employment Allowance available 

• If the Director has reached pension age and therefore does not incur Employee NI 

• If, for the purpose of a mortgage, the bank or building society insists that the Director receiving a high level of fixed salary (although most providers consider Dividends for Directors/Shareholders as being part of remuneration) 

Let’s start with a quick refresher on the old rules: 

• Pensions: Most unused pension funds were excluded from IHT when the person passed away 

• Business Property Relief (BPR): BPR offered up to 100% relief on the value of business assets within your estate 

• Agricultural Property Relief (APR) – APR provided up to 100% relief on agricultural assets within your estate 

So, what’s new? The recent budget brought in some significant changes that could impact your IHT planning: 

• BPR and APR: The 100% relief on business and agricultural assets will now be capped at £1 million. If the combined value of these assets exceeds £1 million, the relief drops to 50% on the excess  

• Pensions: From April 6, 2027, most unused pension funds and death benefits will be included in your estate for IHT purposes