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Legal & General Group ,
30 June 2014

 

Tax relief.

What is tax relief?

To encourage people to save in a pension, the Government gives tax relief on your pension contributions. The amount of tax relief you get depends on how much income tax you pay.

For example, for basic rate taxpayers, the taxman will automatically add tax relief to your pension contributions. Therefore, for every £200 you invest in your pension, the taxman will give you an additional £50, so a total of £250 is actually invested in your pension. The amount you pay is called the net contribution and the amount after basic rate tax relief is added is called the gross contribution.

What tax relief can I get on my pension contributions?

Below are some examples of the tax relief a basic rate taxpayer would receive:

You payThe taxman paysThe total invested into your pension
£50£12.50£62.50
£80£20£100
£100£25£125
£250£62.50£312.50
£400£100£500

If you pay basic rate tax, you don’t need to worry about claiming tax relief, we'll take care of this for you. If you pay higher or additional rate tax, we will still claim the basic rate tax relief for you. In addition, you may be able to claim more tax relief through your yearly self-assessment form. 

How much money can I receive tax relief on?

Up until age 75, you can pay a gross amount of up to 100% of your annual earnings into your pension in a single tax year, up to the Annual Allowance, and still benefit from the tax relief outlined above.

If you earn less than £3,600 in a tax year, you can contribute up to £3,600 gross (£2,880 net), also up to age 75.

The Annual Allowance is £50,000 for the 2013/2014 tax year. This will reduce to £40,000 for the 2014/2015 tax year. This is the maximum gross amount that you're allowed to contribute to your pension each year before you pay a tax charge. However, if you do exceed the Annual Allowance, unused allowances from up to three previous tax years may be available to carry forward to this tax year.

When you take your benefits you can normally take up to 25% of your pension fund as a tax-free cash sum. The remainder will be used to provide a retirement income, which will be taxable.

Saving for your retirement in a personal pension, for example our Stakeholder pension, allows you to take advantage of the extra money that the taxman will add – a boost which could really help fund your retirement. 

Important Information

Please note that:

  • the value of any money invested in a personal pension can fall as well as rise, and is not guaranteed. It is particularly important to remember this if you are close to taking your benefits;
  • any money in your pension fund is tied up until you take your benefits, which is normally from age 55;
  • the law and tax rates may change in the future and the value of tax relief will depend on your individual circumstances.

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