Contributions and tax relief

This section covers various aspects of contributions paid to UK registered pension schemes.

These can be summarised in four short points:

  • Contributions are unlimited.
  • But there are restrictions on the amount of tax relief that will be given.
  • And there are further restrictions which could potentially lead to a tax charge.
  • Fortunately there are ways to try and avoid such a charge.  

Basics

This analysis focuses on pension contributions, who can pay them and if there are any restrictions.

Contributions and tax relief 

The tax relief on contributions is arguably the major selling point of pensions.

An employer can pay any amount of contribution for one of their staff but it's up to their local tax office to decide whether the whole contribution receives tax relief. A member can pay as much as they like into a pension but there's a limit on the amount of tax relief they will be given.

For higher earners, further tax relief may be given. In some scenarios, 60% tax relief is available.

The bands and rates of Scottish income tax differ from the rest of the UK.

You can use redundancy payments to pay a pension contribution, this article explains how this can be done.

Anyone can become or remain a member of a UK pension scheme, regardless of nationality and UK tax treatment. However, tax relief on member contributions will only be available to those who are 'relevant UK individuals'. 

In specie transactions can involve pension schemes in two different ways - in specie transfers and in specie contributions. This article explains the difference.

Annual allowance

The annual allowance is a limit on the amount of contributions that can be made without incurring a tax charge.

This article explains how pension tax relief for individuals with high incomes will be restricted by a tapered reduction in the amount of the annual allowance.

This article explains how scheme pays works and the conditions that apply.

This article explains how pension input amounts operated since the 8 July 2015 budget announcements. 

This policy paper sets out Royal London’s thoughts on how advisers can set about giving sound advice to clients in this space. In addition to providing a brief reminder on how the annual and lifetime allowances work, we examine the options for paying the charges, set out suggested processes for working out whether an individual is better off financially by being in or out of their scheme and explain the other relevant considerations and regulatory issues.

Carry forward

There are potential ways that tax charges can be avoided, most notably by using 'carry forward'.

CPD

Annual allowance, who’s afraid of the big bad tax charge?

We look into some of the technical aspects of the annual allowance (AA), including how it interacts with tax relief, carry forward, the taper and the MPAA. Recorded 12 January 2021.

Pension changes and tax year end

Here we talk about how the changes announced in the Spring Budget 2023 affect your tax year end planning. Recorded 31 January 2024.

Tax relief and annual allowance masterclass

Here we dig deeper into the technicalities of tax relief and the annual allowance in our webinar master-class. Recorded on 17 May 2023.

Tax year end - your top questions answered

We look at how to solve common tax year issues and answer your frequently asked tax year end questions. Recorded 16 January 2023.

The business owner – planning for a catastrophe - In this webinar we'll highlight the rise in business owners and discuss some of the implications in terms of the need for financial planning. Recorded 31 May 2023.

 

Compensation

This article investigates paying compensation payments into a pension and what the tax position is if you do.

Other ways to avoid (or mitigate) tax charges

As well as carry forward, there are some other ways that tax charges can be avoided.

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