If you are under 75 and have relevant UK earnings, you can benefit from tax relief when contributing to a personal pension like a Self-Invested Personal Pension Plan (SIPP) or workplace pension scheme within the Annual Allowance (AA).

The Government provides basic rate tax relief of 20% through ‘relief at source,’ which is claimed by the pension provider from HM Revenue & Customs (HMRC). For instance, if you invest £8,000 in your pension, the government adds £2,000, making your total contribution £10,000.

Higher and additional rate taxpayers can also reclaim further tax relief on their pension contributions. In the 2024/25 tax year, the higher rate tax starts at just over £50,000 of income per year, while the additional rate begins at £125,140. The tax rates for earned income at these levels are 40% and 45%, respectively.

This means that higher and additional rate taxpayers can reclaim an extra 20% or 25% on their pension contributions. Using the previous £10,000 example, these taxpayers may be eligible for an additional refund of £2,000 or £2,500, respectively.

To claim this relief, follow these steps:

Contribute to a pension scheme: Ensure you’re contributing to a registered pension scheme through your employer or a personal pension plan.

Check if you receive tax relief automatically: If you’re part of a workplace pension scheme, your employer might already deduct your contributions from your salary before applying tax. In this case, you’ll automatically receive tax relief at your highest income tax rate.

Claim additional tax relief through Self Assessment: If your pension provider claims tax relief for you at the basic rate (20%), and you are a higher rate taxpayer, you’ll need to claim the additional tax relief through a Self-Assessment tax return. Register for Self Assessment on the HMRC website and complete the form annually, declaring your pension contributions.

Adjust your tax code: If you don’t want to file a Self Assessment tax return, you can contact HMRC to adjust your tax code. Provide them with details of your pension contributions and relevant information about your income. They’ll update your tax code, and you’ll receive the additional tax relief through your PAYE (Pay As You Earn) system.

Seek advice if you need specific guidance on your retirement planning situation. Remember, tax rules can change and individual circumstances may vary. It’s always a good idea to seek advice for specific guidance.

If you would like to discuss this, or any aspect of financial advice with one of our Wealth Planners, feel free to email us at hello@successionwealth.co.uk or call us on 0800 051 4659 and we will arrange for someone in your area to contact you.

Please note: This content is for general information only and does not constitute advice. The information is aimed at retail clients only.

This information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change and tax implications will be based on your individual circumstances.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by interest rates at the time you take your benefits.

FP2024-149 - Last Updated April 2024