Tax Efficient Pensions

(4 Minute Read)

Key information on pension contributions!

What is it?

If you are a UK taxpayer you can get tax relief on pension contributions of up to 100% of you earnings, or £40,000 whichever is lower. This means that some money that would otherwise go the tax man will instead go to your pension pot.

This is because contributions made to UK-registered pension funds may not be subject to tax, and their is also relief on the growth within the scheme

The tax relief you receive might be different depending on if you are making the contribution personally, or if it is through your employer.



I pay my own pension?

If you pay the contributions personally, then you can make the contributions op to the level of your relevant earnings in the tax year, up to the limit of £40,000.

If you have no relevant earning in the tax year then you can pay up to £3,600 into the scheme per year.

Contributions made in excess of the annual limit result in a tax liability on the extra amount.


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What if my employer pays?

You employer can make contributions into your pension scheme up to the unused contribution limits. These contributions are made before you pay tax, and so the tax bill you face is lower.

Under pension auto-enrolment, employees who earn above the minimum threshold are enrolled into their employer’s pension scheme. Under auto-enrolment the employee and employer contribute fixed rates into the scheme with each payroll run.

This doesn’t count as a benefit, and therefore there is no taxable benefit charge.

If your employer makes the contributions then they can claim relief from Corporation Tax for the amount.


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Sounds great, what can go wrong?

Contributions into unregistered or non-UK-registered funds are subject to different rules.

If you withdraw funds early, or in excess of the limits, you will be subject to extra tax charges.

There is also a lifetime limit for your pension fund of £1,073,100. Any pension funds above this amount will be subject to tax.


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Kind regards Ilyas