If you’re 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.

The government extends fundamental rate tax relief at a rate of 20% through the mechanism of ‘relief at source,’ which the pension provider claims from HM Revenue & Customs (HMRC). As an illustration, if you allocate £8,000 to your pension, the government augments this with £2,000, resulting in a combined contribution of £10,000.

Individuals classified as higher and additional rate taxpayers are entitled to recover supplementary tax relief on their pension contributions. In the fiscal year 2023/24, the higher rate tax threshold is initiated at slightly above £50,000 of annual income, while the additional rate takes effect at £125,140. The applicable tax rates for earned income within these thresholds are 40% and 45%, correspondingly.

This signifies that individuals subject to higher and additional tax rates can potentially recoup an additional 20% or 25% on their pension contributions. Referring to the aforementioned £10,000 example, these taxpayers might qualify for an added reimbursement 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’re 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.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.