Pension tax relief is one of the most misunderstood tax breaks, which can be highly valuable if applied properly.
UK residents under 75 are able to claim a share of the tax relief by paying into a pension, such as a SIPP (Self Invested Personal Pension).
Currently, you are able to receive up to 45% tax relief. The amount can vary year by year. With the recent uncertainty around the UK’s Finances, cuts to tax relief have been seen. This therefore may guide people to make the most of the relief while its still around.
What are the other tax benefits of a pension?
1. No inheritance tax: any money that is left when you die will typically be passed to your beneficiaries and is not eligible to inheritance tax.
2. Tax-Free cash- once you reach 55 (57 from 2028) you are able to start making withdrawals of up to 25% usually tax free.
3. Tax-free growth- money in a pension can grow free of UK Income Tax and Capital Gains Tax.
Pension Tax Relief in 2017-01-18
When you make a pension contribution the government automatically pays 20% of the total. Higher-rate taxpayers are able to claim back up to a further 20% through their tax return, while top-rate tax payers can claim back up to a further 25% through their tax return.