Pension Contributions and Tax Relief

When you pay into a registered UK pension scheme, you will receive tax relief.

Tax relief will be given in one of two ways; depending on whether you are paying into a personal pension scheme or a workplace pension under a net pay arrangement.

1 Personal pension schemes

When you make a contribution to a personal pension scheme, the government will automatically add 25% to the net contribution. This means that if you make an £8,000 contribution, £10,000 will end up in your pension fund.

1.1 What about higher rate taxpayers?

Higher and additional rate tax payers (generally, those earning over £45,000) can also claim an additional tax refund when they make contributions to a personal pension scheme.

A higher rate taxpayer may be able to claim back £2,000 in the example above, so £10,000 could end up in the pension fund, for a net cost of only £6,000.

For additional rate taxpayers, the effective cost of a £10,000 contribution could be as low as £5,500.

1.2 How do I claim the tax relief?

Higher rate taxpayers can claim their gift aid relief via a tax return or by contacting HMRC directly. The process is not always straightforward, but claims can be made going back four years and sometimes result in very large repayments.

If you have any questions or would like help claiming the tax back, Simon Tadman at SRT Tax Consulting would be delighted to help.

2 Net pay arrangements

Some, but not all, employer provided pension schemes may be operated under net pay arrangements.

Tax relief on pension contributions under net pay arrangements is given by the employer deducting the pension contribution from the employee’s gross pay and only taxing the balance.

Under these type of schemes, all income tax relief is given directly and no further claim is required.

Questions?

If you are a higher or additional rate taxpayer and have contributed to an employer provided pension but are not sure what type of scheme it is, please get in touch. We would be delighted to check if you are due a refund and to assist with the claim if required.

Disclaimer

Please note that although some people can contribute as much as they earn to pensions. A £40,000 annual allowance applies generally and can be as low as £10,000 for some higher earners and £4,000 for others when they have already accessed their pension. There are also lifetime limits and further restrictions for non-residents and those over 75 years old.

The information provided by SRT Tax Consulting is general in nature and does not constitute specific tax advice. Professional advice should be sought before deciding on a course of action, or refraining from a certain action, arising from the above information. Tax legislation changes regularly and information contained herein is provided based on legislation as at 17 November 2017.