Tax Relief
Contributions paid by you to an occupational pension scheme
(i.e. final
salary, career
average and money purchase) deducted through
your employer's payroll and attract tax relief.
The contribution is deducted from your gross pay before Income
Tax is deducted. This gives you tax relief on your
contribution 'at source'. If you're a basic rate tax payer, the tax
relief is 20% on the whole of your contribution. If you're a
higher rate tax payer, you get 40% tax relief on your contribution.
If you are an additional rate tax payer then you may get 50% tax
relief on your contributions.
Some higher rate tax payers will receive two rates of tax relief
on their contributions. This happens when earnings are just
above the threshold moving someone into the higher rate. For
example, your higher rate threshold is £45,000 and you earn
£46,000. £1,000 of your contribution attracts tax
relief at 40% and the excess at 20%. Additional rate payers may get
up to 50% tax relief.
Limits
The maximum amount you can contribute to
a pension plan, and on which you can receive tax relief,
is 100% of your earnings or £3,600, whichever is
greater. This is capped at the Annual Allowance (see below).
You can pay more than this but there will be no tax relief on
the excess.
Contributions can also be paid by the employer and these count
towards the Annual Allowance.
Increases in the value of your pension built up under final
salary and career average schemes also count towards the Annual
Allowance.
Annual Allowance
The Annual Allowance is an annual limit set by HMRC.
For money purchase schemes, it's the
limit on how much can be paid by in total by you and your employer
in a tax year.
For final salary and career
average schemes, the limit is on the value of the increase in
your pension built up in a tax year.
The Annual Allowance for the tax year 2012/13 is
£50,000. The rates from 2006 through to 2013 are:
| The Annual Allowance: 2006/07 to
2012/13 |
| Tax Year |
Annual Allowance |
| 2006/07 |
£215,000 |
| 2007/08 |
£225,000 |
| 2008/09 |
£235,000 |
| 2009/10 |
£245,000 |
| 2010/11 |
£255,000 |
| 2011/12 & 2012/13 |
£50,000 |
Contributions paid in excess of the allowance or the value of
pensions that accrue in excess of the allowance give rise to a tax
charge at the individual's own marginal rate.
For each scheme, the Annual Allowance is not applicable in the
tax year that retirement benefits are drawn.
New Annual Allowance Rules From 6 April 2011
We have produced three factsheets to help you understand this
change and it's implications. Click here to visit our publications page and
view the factsheets.
Whilst we endeavour to do our best to help all our customers, we
are a small organisation and do not have the capacity to undertake
the checking of individual calculations. Annual Allowance
calculations are a complex area of law on which individual advice
should be sought.
HMRC has also published a guide and several examples on the
new rules here:
http://www.hmrc.gov.uk/pensionschemes/annual-allowance/index.htm
Q & A's
Individuals can obtain tax relief on their contribution of up to
£3,600 or 100% of earnings if greater. There is an overall
maximum known as the Annual Allowance. The Annual Allowance
includes contributions paid by you and your employer.
Contributions above this limit can be made but the excess will
not qualify for tax relief. Contributions that are not
tax-relievable will not count towards the Annual Allowance.
Yes. Prior to April 2006 there were restrictions but these are
now removed. The only restrictions are the level of tax efficient
pension saving you can make, which is limited by the Annual and
Lifetime Allowances.
If the Inspector of Taxes agrees that the payment is assessable
under Schedule E, it may be possible for an arrangement to be
entered into with the employer which allows the payment, or part of
it, to be paid as an employer's contribution to the scheme. This
amount must be actuarially justified and allowable under the scheme
rules. However once the payment has been made to the employee this
option is no longer available.
Contributions deducted from your salary should be paid to the
scheme provider within 19 days of the end of the month in which the
deduction was made. If therefore, for example, your contributions
were deducted from your salary on 25th January, they must be passed
to the pensions' provider by 19th February. More generous rules
apply to contributions made on your behalf by your employer but
there should normally be some form of schedule outlining the due
dates of both employee and employer.
Only a 'relevant UK individual' is able to obtain tax relief on
contributions to a UK pension scheme. This means tax relief is
available in a tax year to any of the following:
- An individual with relevant UK earnings chargeable to income
tax for that year;
- UK residents at some time during the that tax year;
- An individual resident in the UK at some time during the 5
years immediately before that year, and when the individual became
a member of the pension scheme;
- Individuals or their spouses who have earnings from overseas
Crown employment subject to UK tax.
If you do not fall into any of these categories, you can still
contribute to a UK pension scheme, if its rules allow, but your
contributions will not qualify for UK tax relief.
No. Prior to the 6th of April 2011 it was
possible to pay unrestricted contributions into a pension plan in
the year in which you took your benefits as no Annual Allowance
test would apply in the final year. From the 6th of
April 2011 there will be no longer be a blanket exemption from the
Annual Allowance test in the year benefits are vested. There will
only be exemptions in the cases of serious ill health retirement
and on the death of a pension scheme member. HMRC has published
some notes and examples here:
http://www.hmrc.gov.uk/pensionschemes/annual-allowance/guide.htm#3
