You\u2019ll often pay Income Tax on money you receive. But if you put that money into a pension, the tax you would normally pay is usually added to your pension instead.\u00a0\u00a0This is called tax relief and means your savings are usually boosted by 20% or more, depending on your rate of Income Tax.\u00a0 It\u2019s one of the best things about saving into a pension, as the government is effectively paying into your Pension alongside your contributions.<\/p>\n
In many cases, you won\u2019t need to do anything as your employer or pension provider will apply tax relief automatically for you.\u00a0\u00a0But you will usually need to claim tax relief yourself if you don’t earn enough to pay Income Tax or\u00a0pay Income Tax at a higher rate than 20%.<\/p>\n
Example<\/strong>: If you pay Income Tax at 40%, you can claim an extra 20% in tax relief. This means a \u00a3100 contribution into your pension will cost you just \u00a360, as your pension provider has claimed \u00a320 in tax relief and you\u2019ve claimed another \u00a320 back.<\/p>\n You\u2019ll need to claim every tax year you\u2019re eligible and can usually backdate a claim for the last three tax years. You\u2019ll either receive the extra tax relief as a:<\/p>\n If you\u2019re a non-taxpayer (or pay the 19% Scottish starter rate) you\u2019re entitled to keep the 20% tax relief as long as you don\u2019t contribute more than you earn.\u00a0\u00a0If you earn less than \u00a33,600 a year, you can get tax relief on pension contributions you make up to \u00a32,880 each tax year.<\/p>\n <\/p>\n Each tax year until you’re 75, you can usually get tax relief on all your pension contributions up to the amount you earn or your Annual Allowance \u2013 this is \u00a360,000 for most and covers all payments into your pension, including any from your employer.\u00a0\u00a0If you earn under \u00a33,600, you can get tax relief on up to \u00a32,880 of your pension contributions.\u00a0\u00a0Pension contributions made after age 75 are not eligible for tax relief.<\/p>\n Example:<\/strong>\u00a0If you earn \u00a325,000 a year, you can usually pay up to \u00a325,000 into your pension without paying tax (\u00a320,000 of your money and \u00a35,000 in tax relief). If you did this, your employer could contribute another \u00a335,000 tax-free.<\/p>\n <\/p>\n If you pay into your pension using salary sacrifice, your contribution is treated as being made by your employer.\u00a0\u00a0This means you don\u2019t get tax relief in the standard way.\u00a0 Instead, as you have given up a portion of your wages, you\u2019ll pay less Income Tax and National Insurance by having a lower salary \u2013 often making your take home pay higher.\u00a0\u00a0Your employer will usually pay less National Insurance contributions too, so might add some or all of this saving to your pension contribution.<\/p>\n If you run your own limited company, you can usually decide which payments into your pension are made as:<\/p>\n Employer contributions can be deducted as a business expense<\/strong><\/p>\n Employer contributions do not qualify for tax relief, but they can usually be deducted as a business expense to reduce the amount of corporation tax you need to pay.\u202f\u202f\u00a0\u00a0This is allowed as long as the employer pension contributions are \u2018wholly and exclusively\u2019 for business purposes, which typically means they\u2019re a reasonable amount for the work being done.\u00a0\u00a0For example, consistent amounts are used for any staff doing similar jobs and pension contributions are not higher than annual profits.<\/p>\n","protected":false},"excerpt":{"rendered":" You\u2019ll often pay Income Tax on money you receive. But if you put that money into a pension, the tax you would normally pay is usually added to your pension instead.\u00a0\u00a0This is called tax relief and means your savings are usually boosted by 20% or more, depending on your rate of Income Tax.\u00a0 It\u2019s one of the best things about saving into a pension, as the government is effectively…<\/p>\n\n
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