Tax Relief on Pension Contributions

One of the main benefits of contributing to a pension scheme is that these contributions attract tax relief, which means that more money goes into your pension pot. The way in which you will be able to receive tax relief will depend on your pension scheme. Contributions paid by you to a Personal Pension scheme or a Stakeholder Pension scheme are made net of basic rate tax which is 20%. This means that for every £100 you want to save, you only pay £80.

However, if you are a higher-rate tax payer (40%), you may able to claim additional tax relief. That depends on how much you earn over the higher rate tax band, any additional tax relief would range between a further 1% up to a maximum of 20%.

From 6th April 2011, if you are an additional-rate tax payer (50%), you can claim additional tax relief at your highest rate. It all depends how much you earn over the higher rate tax band, and your level of contribution. Any additional rate tax relief would range between a further 1% up to a maximum of 30%.

Limits on Tax Relief

Although you can save as much as you like into any number and type of registered pension schemes, you may only receive tax relief on contributions of up to 100% of your annual earnings, subject to an annual allowance (£50,000 in 2012/13). However, you will be required to pay tax at 40% on any contributions above this annual allowance.