As you probably already know you can get tax relief on your pension. The amount of tax relief can vary depending on your level of earning. Plus there are annual and lifetime limits to how much tax relief you can get on pension contributions.
We are going to outline some of the rules around tax relief on private pension contributions so that you can plan more effectively for the future.
When paying into your pension, you receive tax relief on any contributions that you make. This is based on the highest rate of income tax that you pay; provided that the total gross pension contributions paid into your pension scheme, don't exceed the lower of:
- Your annual earnings; and
- The annual allowance.
You automatically get tax relief if:
- Your employer takes workplace pensions contributions from your pay before tax is deducted.
- Your pension provider claims tax relief for you, this is called ‘relief at source’ and is at a rate of 20%
It is important that you track tax relief and make sure it is not more than 100% of your annual earnings. If you pay over this amount HMRC may ask you to pay back the excess.
There are also different amounts of tax relief you can claim if you have a high income and pay higher tax. For example:
- If you pay 40% tax then you can claim tax relief on the extra 20% in your tax return.
- If you pay 45% income tax then you can claim tax relief on the extra 25% in your tax return.
If you would like more information about tax relief on your pensions please do get in touch with us by email