If you’re paying into a pension scheme, you can get tax relief on your contributions, with money that would otherwise be paid in tax going into your pension pot instead.
That can make a big difference when you’re saving for the future, and working to achieve the kind of lifestyle you want in retirement.
The level of tax relief you get is based on your income tax rate, and you will be able to get relief on private pension contributions worth up to 100% of your annual earnings.
Who can get tax relief?
You’ll be entitled to automatic tax relief if:
You’re aged under 75 and a UK resident
Your employer takes workplace pension contributions out of your pay packet before income tax is deducted
You’re taxed at a rate of 20 per cent
How does it work?
If your rate of income tax is 20 per cent, your pension provider will claim the money as tax relief and it will be added to your pension pot – this is called relief at source.
Another way you can get tax relief on your pension contributions is known as net pay, which means your pension contributions are made before you are taxed.
Your pension scheme booklet will let you know which type of tax relief is being used on your pension scheme, and if you’re still not sure, you can always speak to your employer or pension provider directly.
How much tax relief can I get
Although there’s no limit on how much you can put into a pension scheme, there are rules on the amount you can save towards a pension where tax relief applies.
Firstly, any contributions made by you or someone else on your behalf must be equal to or less than your relevant UK earnings for the tax year in which they are made.
Secondly, if the amount you save exceeds the annual allowance – typically £40,000 – you may be liable for a charge, which may offset the amount of tax relief that has been given.
This is a complex area, so if you have any questions about pension planning and any tax reliefs you may be eligible for, please don’t hesitate to get in touch with us. We’ll be happy to speak with you, to make sure you know how best to make your money work harder for you.