Tax relief

You can get tax relief on private pension contributions worth up to 100% of your annual earnings.

You get the tax relief automatically if your:

• employer takes workplace pension contributions out of your pay before deducting Income Tax
• rate of Income Tax is 20% – your pension provider will claim it as tax relief and add it to your pension pot (‘relief at source’)

If your rate of Income Tax in Scotland is 19% your pension provider will claim tax relief for you at a rate of 20%. You do not need to pay the difference.

UK tax relief is also available on contributions made to certain types of overseas pension schemes.

It’s up to you to make sure you’re not getting tax relief on pension contributions worth more than 100% of your annual earnings. HM Revenue and Customs (HMRC) can ask you to pay back anything over this limit.

Relief at source

You get relief at source in all personal and stakeholder pensions, and some workplace pensions.

To get relief at source

Before paying into a scheme, you need to agree to certain conditions about your contributions (‘make declarations’). Your pension provider will tell you what these are.

You also need to give your pension provider your:

• full name and address
• date of birth
• National Insurance number
• employment status – or tell them if you’re retired, a full time student, a carer or aged under 16

Your employer may do this for you if you’re automatically enrolled in their pension scheme.

Your pension provider will let you know if this is the case and ask you to confirm your details are correct. You must do this within 30 days.

When you have to claim tax relief

You may be able to claim tax relief on pension contributions if:

• you pay Income Tax at a rate above 20% and your pension provider claims the first 20% for you (relief at source)
• your pension scheme is not set up for automatic tax relief
• someone else pays into your pension

Claim tax relief in England, Wales or Northern Ireland

You can claim additional tax relief on your Self Assessment tax return for money you put into a private pension of:

• 20% up to the amount of any income you have paid 40% tax on
• 25% up to the amount of any income you have paid 45% tax on

You can also call or write to HMRC to claim if you pay Income Tax at 40%.

Example

You earn £60,000 in the 2022 to 2023 tax year and pay 40% tax on £10,000. You put £15,000 into a private pension. You automatically get tax relief at source on the full £15,000.

You can claim an extra 20% tax relief on £10,000 (the same amount you paid higher rate tax on) through your Self Assessment tax return.

You do not get additional relief on the remaining £5,000 you put in your pension.

Claim tax relief in Scotland

You can claim additional tax relief on your Self Assessment tax return for money you put into a private pension of:

• 1% up to the amount of any income you have paid 21% tax on
• 21% up to the amount of any income you have paid 41% tax on
• 26% up to the amount of any income you have paid 46% tax on

You can call or write to HMRC to claim if you do not fill in a Self Assessment tax return.

If your pension scheme is not set up for automatic tax relief

Claim tax relief in your Self Assessment tax return if your pension scheme is not set up for automatic tax relief.

Call or write to HMRC if you do not fill in a tax return.

You cannot claim tax relief if your pension scheme is not registered with HMRC.

If someone else pays into your pension

When someone else (for example your partner) pays into your pension, you automatically get tax relief at 20% if your pension provider claims it for you (relief at source).

If you’re in a workplace pension that allows other people to contribute you may need to claim the tax relief on those contributions – call or write to HMRC.

If you do not pay Income Tax

You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

• you do not pay Income Tax, for example because you’re on a low income
• your pension provider claims tax relief for you at a rate of 20% (relief at source)

Life insurance policies

You cannot get tax relief if you use your pension contributions to pay a personal term assurance policy, unless it’s a protected policy.

Personal term assurance is a life insurance policy that either:

• ends when the first insured person dies
• insures people who are all from the same family

Annual allowance

Your annual allowance is the most you can save in your pension pots in a tax year (6 April to 5 April) before you have to pay tax.

You’ll only pay tax if you go above the annual allowance. This is £40,000 this tax year.

What counts towards the annual allowance

Your annual allowance applies to all of your private pensions, if you have more than one. This includes:

• the total amount paid in to a defined contribution scheme in a tax year by you or anyone else (for example, your employer)
• any increase in a defined benefit scheme in a tax year

If you use all of your annual allowance for the current tax year

You might be able to carry over any annual allowance you did not use from the previous 3 tax years.

When your annual allowance is lower than £40,000

Your annual allowance might be lower if you have:

• flexibly accessed your pension pot
• a high income

If you flexibly access your pension

Your annual allowance might be lower if you flexibly access your pension. For example, this could include taking:

• cash or a short-term annuity from a flexi-access drawdown fund
• cash from a pension pot (‘uncrystallised funds pension lump sums’)

The lower allowance is called the ‘money purchase annual allowance’.

If you have a high income

You’ll have a reduced (‘tapered’) annual allowance in the current tax year if both:

• your ‘threshold income’ is over £200,000
• your ‘adjusted income’ is over £240,000

The threshold income and adjusted income limits are different for earlier tax years.

Work out your reduced annual allowance.

If you go above the annual allowance

You’ll get a statement from your pension provider telling you if you go above the annual allowance in their scheme. If you’re in more than one pension scheme, ask each pension provider for statements.

You can also use a calculator to work out how much you’ve gone above the allowance.

If you go over your annual allowance, either you or your pension provider must pay the tax.

Fill in the ‘Pension savings tax charges’ section of a Self Assessment tax return to tell HMRC about the tax, even if your pension provider pays all or part of it. You’ll need form SA101 if you’re using a paper form.

You can still claim tax relief for pension contributions on your Self Assessment tax return if you’re above the annual allowance.

HMRC does not tax anyone for going over their annual allowance in a tax year if they:

• retired and took all their pension pots because of serious ill health
• died

Lifetime allowance

You usually pay tax if your pension pots are worth more than the lifetime allowance. This is currently £1,073,100.

You might be able to protect your pension pot from reductions to the lifetime allowance.

Check how much lifetime allowance you’ve used

Ask your pension provider how much of your lifetime allowance you’ve used.

If you’re in more than one pension scheme, you must add up what you’ve used in all pension schemes you belong to.

What counts towards your allowance depends on the type of pension pot you get.  

Your pension provider may ask for information about other pension schemes you’re in so they can check if you’re above your lifetime allowance when you:

• decide to take money from a pension pot
• turn 75
• transfer your pension overseas

Pay tax if you go above your lifetime allowance

You’ll get a statement from your pension provider telling you how much tax you owe if you go above your lifetime allowance. Your pension provider will deduct the tax before you start getting your pension.

You’ll need to report the tax deducted by filling in a Self Assessment tax return – download and fill in form SA101 if you’re using paper forms. You’ll get information from your pension provider to help you do this.

If you die before taking your pension HM Revenue and Customs (HMRC) will bill the person who inherits your pension for the tax.

Rates

The rate of tax you pay on pension savings above your lifetime allowance depends on how the money is paid to you – the rate is:

• 55% if you get it as a lump sum
• 25% if you get it any other way, for example pension payments or cash withdrawals

Protect your lifetime allowance

The lifetime allowance was reduced in April 2016. You can apply to protect your lifetime allowance from this reduction.

Tell your pension provider the type of protection and the protection reference number when you decide to take money from your pension pot.

Withdrawing cash from a pension pot

You cannot withdraw cash from a defined contribution pension pot (‘uncrystallised funds pension lump sums’) if you have:

• primary or enhanced protection covering a lump sum worth more than £375,000
• ‘lifetime allowance enhancement factor’ if your unused lifetime allowance is less than 25% of the cash you want to withdraw

Reporting changes to HMRC

You can lose enhanced protection or any type of fixed protection if:

• you make new savings in a pension scheme
• you are enrolled in a new workplace pension scheme
• you transfer money between pension schemes in a way that does not meet the transfer rules
• you’ve got enhanced protection and, when you take your pension benefits, their value has increased more than the amount allowed in the enhanced protection tax rules – this is called ‘relevant benefit accrual’
• you’ve got fixed protection and the value of your pension pot in any tax year grows at a higher rate than is allowed by the tax rules – this is called ‘benefit accrual’

You can report changes online or by post.

Ask your employer whether they’re likely to enrol you in a workplace pension. To make sure you do not lose protection, you can either:

• opt out of most schemes within a month
• ask not to be enrolled in some schemes – your employer may need evidence of your lifetime allowance protection

Tell HMRC in writing if you think you might have lost your protection.

If you have the right to take your pension before 50

You may have a reduced lifetime allowance if you have the right to take your pension before you’re 50 under a pension scheme you joined before 2006.

This only applies to people in certain jobs (for example professional sports, dance and modelling) who start taking their pension before they’re 55.

Your lifetime allowance is not reduced if you’re in a pension scheme for uniformed services, for example the armed forces, police and fire services.