What is tax relief on pensions?

For every payment you make into your pension, you'll receive up to 20% tax relief on contributions you make. We'll claim it from HMRC on your behalf and add it to your pension.

Remember that:

  • If you pay in more than your 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 may be able to claim additional tax relief from HMRC directly via your Self-Assessment tax return. This 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 gov.uk

 

How much is the tax relief on pensions?

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 £10,000 £10,000
Extra 25% (equivalent to 20% at source) £2,500 £2,500 £2,500
Total investment value £12,500 £12,500 £12,500
Extra you can claim via Self Assessment £0.00 £2,500 £3,125
Total investment cost £10,000 £7,500 £6,875

Income tax relief in Scotland

If you pay income tax in Scotland, you’ll still get the 25% top up, which is equivalent to 20% at source. Any additional tax relief you can claim from HMRC will differ. This table shows the different levels of tax relief you can get on a £10,000 investment, based on Scotland's five income tax brackets.

 
Scotland 19% starter rate 20% basic rate 21% intermediate rate 41% higher rate 46% top rate
You pay in £10,000 £10,000 £10,000 £10,000 £10,000
Extra 25% (equivalent to 20% at source) £2,500 £2,500 £2,500 £2,500 £2,500
Total investment value £12,500 £12,500 £12,500 £12,500 £12,500
Extra you can claim via Self Assessment £0.00 £0.00 £125 £2,625 £3,250
Total investment cost £10,000 £10,000 £9,875 £7,375 £6,750

UK allowances for children under 16 and adults who don't pay income tax 

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 tax relief top up, the maximum invested will be £3,600.

 

What are the tax relief limits on pensions?

If both your threshold income is less than £200,000 and your adjusted income is less than £240,000, you’ll get tax relief on all contributions made into your pensions until you reach the £40,000 annual allowance limit. If your total income exceeds these limits, then an annual taper will come into play.

This limit includes the automatic 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 £240,000, your annual allowance could be less than £40,000 and as little as £4,000.

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

If you save more than this in a tax year, you can roll the remaining balance over for up to three years. So if you rolled over (sometimes known as 'carry forward') £10,000 and earn under £240,000, your allowance next year would be £50,000.There's also a lifetime allowance of £1.0731 million which is the total you can save in your pension. If you save in more than this, any excess benefits will be taxed at 25% if taken as a pension, or 55% if taken as a lump sum.

 

More features of tax on pensions

Investments in pensions grow free from income tax and capital gains tax.

You can withdraw money from your pension when you turn 55 (rising to 57 from 2028), but you can continue paying into until you’re 75 and still receive tax relief.

If you pay money in after you’ve started withdrawing, you may be affected by the money purchase annual allowance (MPAA). This stops people from getting a second round of tax relief by withdrawing from a pension then paying straight back into the same pension or another pension 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, speak to a tax adviser, accountant or take a look at gov.uk.

Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest. Tax rules may change in the future and their tax advantages depend on your individual circumstances.