Everything you Need to Know About Pension Tax Relief

When you pay into a private pension, the government usually ‘tops up’ what you pay as their way of encouraging you to save for your future. This top up is provided in the form of pension tax relief. Join us as we explore the subject of  tax relief on pensions, who is eligible and how it works.

Pension tax relief is given to UK private pension holders who are:

  • Under the age of 75
  • UK resident
  • Making a gross contribution up to either UK relevant earnings, or £3,600 gross (£2,800 net), whichever is highest

How to get pension tax relief in the UK?

If your employer takes workplace pension contributions from your pay before deducting Income Tax, then you will receive tax relief automatically. Alternatively, if your rate of Income Tax is 20%, then your pension provider will claim it as tax relief and add it to your pension pot. The latter is known as ‘tax relief at source’.

UK pension tax relief is also available on contributions made to certain types of overseas pension schemes.

It is important to be aware that it is down to you to make sure that your tax relief on pension contributions is not worth more than 100% of your yearly earnings. If it is, then HM Revenue and Customs (HMRC) could ask you to pay back anything over this limit.

Claiming tax relief on a pension when it is not applied automatically

Sometimes, you will need to claim the tax relief yourself. This could be the case if:

  • Your rate of Income Tax is above 20% and your pension provider claims the first 20% for you
  • Your pension scheme is not set up for automatic tax relief
  • Someone else pays into your pension

You can claim personal pension tax relief on your Self-Assessment tax return for any contributions you put into a private pension at the following rates:

  • 20% up to the amount of any income you’ve paid tax on at a rate of 40%
  • 25% up to the amount of any income you’ve paid tax on at a rate of 45%

You can also call or write to HMRC to claim if you pay Income Tax of 40%.

If your pension scheme does not automatically give you tax relief and you do not complete a Self-Assessment tax return, then again you can call or write to HMRC to make your claim.

It is not possible to claim pension tax relief if your pension scheme is not registered with HMRC.

If someone else pays into your pension scheme, for example your partner, then you will automatically receive tax relief at 20% if your pension provider claims it for you via relief at source.

For workplace pensions that allow third party contributions, you may need to claim the tax relief on those contributions by calling or writing to HMRC.

What if I don’t pay Income Tax, do I still qualify for tax relief on my pension?

You will still qualify for automatic tax relief on your pension at 20% on the first £2,880 net that you pay into a pension each tax year (6 April to 5 April), providing both of the following apply:

  • You do not pay Income Tax (perhaps because you are on a low income)
  • Your pension provider claims tax relief for you at 20% via relief at source

Why is tax relief on pension contributions so important?

If you are saving for retirement, then tax relief on pension contributions can be very valuable. The more you pay in, the more you get back from the government.

It is, however, important to be aware of any allowances and limits that apply when contributing to a pension, so that you don’t contribute too much and end up having to pay tax charges.

For this reason, it is vital to take specialist retirement planning advice from an expert who is well-versed in all aspects of personal pensions and personal pension tax relief.

Looking for personal pension advice?

At Partridge Muir & Warren, we have been advising individuals and couples on their retirement options for more than 50 years. Our advice is independent, widely trusted and focused on the best interests and personal aims of our clients.

If you would like to make sure you are maximising your savings for retirement and claiming the pension tax relief you’re entitled to, why not get in touch with our friendly retirement planning team, and arrange your no-obligation complimentary consultation?