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Limit on pension tax relief?

Retirement | Occupational Pension Helpful? 5

Asked by payton, submitted 30 June 2012.

Open Quote I have an occupational pension and i want to contribute £40,000 into it through my employer and myself for this year. Will i get tax relief at the basic rate on this amount?End Quote

Answered by Justin on 10 July 2012

Tax relief is given on pension contributions (including any employer contributions) of up to your earnings or £50,000 a year, whichever is lower.

So, provided your earnings between 6 April 2012 and 5 April 2013 are at least £40,000 and your overall pension contributions, including any money your employer pays in, are less than £50,000 you'll get tax relief on your contributions.

The amount of tax relief depends on your overall earnings for the year. If your income falls fully within the basic rate band then you'll get 20% tax relief on the whole contribution, i.e. for every £80 you pay in £20 tax relief will be added to bring the contribution to £100. If you're a higher rate taxpayer then the proportion of your £40,000 contribution that falls into the higher rate band will enjoy 40% tax relief, i.e. a £60 contribution will enjoy £40 tax relief to give a £100 overall contribution.

Note, your employer may make contributions directly from your gross salary, so you won't pay income tax on that money (the net result being the same as above). But if your employer makes a pension contribution out of their pocket rather than your earnings, then they'll benefit from tax relief and not you (the contribution would be treated as a business expense to offset against their taxable profits).

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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Readers' Comments (1) - To post a comment please register or login .

Comment by webwiz at 11:10pm on 13 Jul 2012:

Yes, but don't forget the lifetime allowance limit as well.