Tax on your private pension. Part 1.

As an individual making private pension contributions you are entitled to a tax-free amount, up to certain limits.

This tax-free amount is available on:

·      Workplace pensions

·      Personal and Stakeholder pensions

·      Overseas pension schemes that qualify for UK tax relief


Limits to your tax-free contributions

You usually pay tax if savings in your pension pot goes above:

·      100% of your earnings per year

·      £40,000 a year

·      £1 million in your lifetime

You also pay tax on contributions if your pension provider:

·      Isn’t registered for tax relief with HMRC

·      Doesn’t invest your pension pot according to HMRC


Tax relief

Tax relief worth up to 100% of your annual earnings are available on your private pension contributions. You get the tax relief automatically if your employer takes workplace pension contributions out of your pay before deducting Income Tax. Tax relief is also available automatically if your pension provider claims tax relief for you at a rate of 20% and adds it to your pension pot.


Claiming pension tax relief

You are entitled to claim tax relief on pension contributions if:

·      You pay Income Tax at a rate above 20% and your pension provider claims the first 20% for you

·      You pension scheme isn’t set up for automatic tax relief

·      Someone else pays into your pension

A 20% extra pension tax relief is available to those who pay 40% income tax. An extra 25% is available to those who pay 25% Income tax. This is claimable on your Self Assessment tax return. 

If your pension scheme isn’t set up for automatic tax relief it can be claimed in your Self Assessment tax return.

If you do not pay income tax you are still eligible for tax relief at 20% on the first £2,880 you pay into a pension each year.


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