Pension tax relief benefits

A pension is a great way to save and grow your money as you can get tax relief on the payments you make into it.

For every penny you pay into our personal pension, we’ll automatically add up to 25% extra tax relief on top of which we claim from HMRC on your behalf. This is equivalent to 20% tax relief on your contributions. Please be aware that, if you pay in more than the £40,000 annual allowance, you may have to give some of this tax relief back to HMRC.

If you pay income tax above the basic rate, you can also claim up to 25% more (up to 26% if you’re a Scottish taxpayer) from HMRC directly. This needs to be done via your Self-Assessment tax return and will be offset against your total tax liability for the tax year rather than paid into your pension.

The exact amount you can claim depends on your income tax bracket, where you live in the UK and the annual allowance limit for that tax year. You can find out more on the HMRC website.

 

Tax relief based on your income

This table shows the different levels of tax relief you can get on a £10,000 investment, based on the three income tax brackets in England, Northern Ireland and Wales.

x
UK (exc. Scotland) 20% basic rate 40% higher rate 45% additional rate
 You pay in  £10,000.00   £10,000.00   £10,000.00
 Extra 25% (equivalent to 20% at source)  £2,500.00   £2,500.00   £2,500.00
 Total investment value  £12,500.00   £12,500.00   £12,500.00
 Extra you can claim via Self Assessment  £0.00  £2,500.00  £3,125.00
 Total investment cost  £10,000.00  £7,500.00  £6,875.00

Children under 16 and adults who don’t pay income tax can pay up to £2,880 net into a pension this tax year. With the automatic 25% top up, the maximum invested will be £3,600.

If you pay income tax in Scotland, you’ll still get our 25% top up but any additional tax relief you can claim from HMRC will differ.

Income tax relief in Scotland

This table shows the different levels of tax relief you can get on a £10,000 investment, based on the five income tax brackets in Scotland.

 
Scotland 19% basic rate 20% basic rate 21% intermediate rate 41% higher rate 46% top rate
 You pay in  £10,000.00   £10,000.00   £10,000.00   £10,000.00  £10,000.00
 Extra 25% (equivalent to 20% at source)  £2,500.00  £2,500.00  £2,500.00  £2,500.00 £2,500.00
 Total investment value  £12,500.00  £12,500.00  £12,500.00  £12,500.00 £12,500.00
 Extra you can claim via Self Assessment £0.00  £0.00  £125.00  £2,625.00 £3,250.00
 Total investment cost  £10,00.00  £10,00.00  £9,875.00  £7,375.00 £6,750.00

Tax relief limits

You can pay up to 100% of your gross annual income into a pension. If you have an adjusted income of less than £150,000, you’ll get tax relief on all payments until you reach the £40,000 annual allowance limit.

This limit includes the automatic 25% top up, so you only need to pay in £32,000 to enjoy tax benefits on the whole £40,000. If you have an adjusted income of more than £150,000, your annual allowance could be less than £40,000 and as little as £10,000.

You can pay in more than your annual income if you've rolled over any of your allowance.

This means that if you don’t use the full allowance in a tax year, you can roll the remaining balance over for up to three years. So if you rolled over £10,000 and earn under £150,000, your allowance next year would be £50,000.There's also a lifetime allowance of £1.055million which is the total you can save in your pension. If you pay in more than this, any benefits will be taxed at 25% (plus Income Tax) if taken as a pension, or 55% if taken as a lump sum.

Other tax features

Just like with other pensions, your investments grow free from income tax and capital gains tax.

You can withdraw money from this pension when you turn 55 but continue paying into it until you’re 75. If you pay money in after you’ve started withdrawing, you may be affected by the money purchase annual allowance (MPAA).

This restricts people from getting a second round of tax relief by withdrawing from a pension then paying straight back into the same pension or another one they hold. The MPAA is currently £4,000, meaning you may be taxed extra if you pay in more than this allowance after withdrawing money from your pension. You can’t roll any unused MPAA over into a new tax year.   

The exact amount of tax you’ll pay depends on your total annual income and your tax rate. If you’re not sure about the tax relief you’re eligible to receive, we recommend you speak to a tax adviser, accountant or take a look at the HMRC website.