Tax relief on UK pensions
When you’re thinking about how much money to save into your pension plan, it’s important to understand how pension tax relief works.
You can receive pension tax relief on any personal contributions that you make, up to 100% of your salary. There’s also a separate limit on the sum of all contributions (personal contributions including tax relief, and employer contributions) that you can make in a tax year capped at £60,000 gross for (2024/25). This amount is known as the annual allowance and any contributions that you make over this limit are taxed at your highest rate.
Under the right circumstances you may have the option to carry forward any unused allowances from the previous three years, totalling up to £140,000, on top of your current year’s annual allowance.
Lower income pension tax relief
If you earn less than £3,600 annually or don’t earn anything, the maximum amount you can personally contribute to your pension within the tax threshold is £2,880 net, bringing your total annual contribution to £3,600 once tax relief’s added.
Higher and additional rate pension tax relief
Most basic rate taxpayers usually get a 25% tax top up, so if you paid £100 into your pension, HMRC would effectively add another £25 which would bring the total contribution up to £125. PensionBee will claim this tax top up on your behalf if you’re paying into a PensionBee plan.
Higher and additional rate taxpayers can claim a further 25% and 31% respectively through their Self-Assessment tax returns.
For example, a higher rate taxpayer with a salary of £60,000 (of which £9,729 are at the higher rate) - only £9,729 of the £20,000 contribution would be eligible for the extra tax relief.
You can claim back tax relief for the previous four tax years. To claim higher rate tax relief on your pension contributions, you have two options:
1. Online Self-Assessment tax return
The simplest way to claim is by completing your tax return online. If you haven’t done this before, you can register and complete your tax return on the gov.uk website. Under the tax relief section you can enter your pension contributions. Make sure to include the total gross contributions for the relevant tax year, including the basic 20% tax relief you’ve already received.
2. Contacting HMRC directly
You can also claim higher rate tax relief by contacting HMRC online or in writing. You can use this template to write to the government and claim your extra tax relief. Ensure that all the details in your personal tax account are accurate and up to date. Note that if you make additional contributions to your pension after contacting HMRC, you’ll need to inform them again.
Your tax relief will be paid as either:
- a change to your tax code;
- a rebate at the end of the year; or
- a reduction in your tax liability.
Tapered annual allowance and tax relief
A new tapered allowance has been introduced, which affects the pension tax relief limits for high earners. It basically means that if your adjusted income (your income plus pension contributions) is over £260,000, your annual pension tax relief limit is reduced, and the amount tapers all the way down to £10,000 for incomes of £360,000 or more.
This table shows how the tapered allowance works:
| Earnings | New annual allowance |
|---|---|
| Up to £260,000 | £60,000 |
| £270,000 | £55,000 |
| £280,000 | £50,000 |
| £290,000 | £45,000 |
| £300,000 | £40,000 |
| £310,000 | £35,000 |
| £320,000 | £30,000 |
| £330,000 | £25,000 |
| £340,000 | £20,000 |
| £350,000 | £15,000 |
| £360,000 | £10,000 |
Claiming tax relief with PensionBee
When you make personal contributions to your PensionBee pension, we’ll add your 25% tax top up automatically! Please note that we’re only able to apply for the standard basic rate tax relief. If you’re a higher or additional rate taxpayer, you’ll need to claim any additional tax relief yourself through your Self-Assessment tax return.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 16-08-2024
