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Pension tax relief at source

31 August 2023

In the UK, taxpayers can claim tax relief on private pension contributions, with annual allowances of £60,000 in 2023-24 and £40,000 in 2022-23. Relief rates vary by tax bracket, and there's a three-year carry-forward rule.

You can usually claim tax relief for your private pension contributions. There is an annual allowance for tax relief on pensions of £60,000 for the current 2023-24 tax year. The annual allowance for 2022-23 was £40,000.

You can claim tax relief on private pension contributions worth up to 100% of your annual earnings, subject to the overriding limits. Tax relief is paid on pension contributions at the highest rate of Income Tax paid.

This means that if you are:

  • a basic rate taxpayer you receive 20% pension relief;
  • a higher rate taxpayer you can claim 40% pension tax; and
  • an additional rate taxpayer you can claim 45% pension tax relief.

Kinds of Pension Schemes

There are two kinds of pension schemes where you receive relief automatically. Either:

  • your employer takes workplace pension contributions out of your pay before deducting Income Tax; or
  • your pension provider claims tax relief from the government at the basic 20% rate and adds it to your pension pot (‘relief at source’).

If you are a higher rate or additional rate taxpayer, you can claim back any further reliefs you are entitled to on your Self-Assessment tax return. You may also need to make a claim if your pension scheme is not set up for automatic relief or if someone else pays into your pension.

There is a three year carry forward rule that allows you to carry forward any unused amount of your annual allowance from the last three tax years; if you have made savings in those years. (There used to be a lifetime limit for relief on pension contributions, but this was removed with effect from 6 April 2023.)

The above applies for claiming tax relief in England, Wales or Northern Ireland. There are regional differences if you are based in Scotland.

For more information regarding private pensions, click here.

Source: HM Revenue & Customs Tue, 29 Aug 2023 00:00:00 +0100

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