Are pension contributions taxable?

Find out if your pension is taxable and how tax relief for pensions works.

The contributions you make into your pension pot aren’t necessarily taxable as long as you stick within the allowances. It’s a pretty generous allowance so it shouldn’t really impact you unless you’re pretty well off. Find out more about paying tax on your contributions, what your allowances are and how to claim any tax relief you are due.

Are my contributions to my pension pot taxable?

Your pension contributions are tax free up to a certain amount, known as the “allowance”. There’s both a lifetime and an annual allowance to consider.

This allowance applies to:

  • Workplace pensions
  • Personal pensions
  • Stakeholder pension
  • Qualifying overseas pension schemes

You must be registered with HMRC to qualify for any tax relief. If you’re not registered then you might have to pay tax on any contributions you make to your pension.

You’ll have to pay tax if your pension goes above:

  • 100% of your annual earnings
  • £40,000 a year
  • £1,073,100 in your lifetime

Can I claim tax relief on my pension?

For pensions that are under the allowances, you get tax relief to make up for the fact that you already paid income tax on it.

Sometimes the tax relief is automatic, such as if:

  • Your employer takes your workplace pension contributions out of your pay. Contributions will be made before your income tax is worked out.
  • Your rate of income tax is 20%. Your provider claims this as tax relief and adds it to your pension pot. This is called “relief at source.”

If you get tax relief on your pensions worth more than 100% of what you earn annually, it’s your job to make sure it’s rectified. You may have to pay it back if it turns out to have been taxable.

What is relief at source?

This is where your pension provider tops up your pension pot with 25% of what you put in to account for the 20% you paid as income tax when you were paid. You may need to make certain declarations about your pensions when setting up a private pension – your provider will let you know what you’ll need to declare. Be prepared for the provider to ask for your personal details.

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

Claiming tax relief yourself

You may need to claim your tax relief yourself if:

  • You pay income tax at a rate higher than 20% and your pension provider claims the first 20% back on your behalf
  • Your pension scheme doesn’t have automatic tax relief set up
  • Someone else pays into your pension for you.

How do I claim?

You claim for the tax relief on your self assessment tax return, which is generally the form that the self employed fill out. It’s pretty straightforward to fill out and can all be done online.

What is the pension annual allowance?

The most you can save into your pension pot in one tax year (from 6 April to 5 April) is known as the annual allowance.

The allowance is £40,000. You’ll have to pay tax on contributions if you go over this amount. This is your allowance for all of your pensions added together, but you might be able to carry over any unused allowance from the previous three years.

What is the lifetime pension allowance?

If your pension pots go above the lifetime allowance of £1,073,100 then it’s likely that you’ll have to pay tax on your contributions.

This can be a bit baffling for a defined benefit pension – you can work out how much of your lifetime allowance you’ve used by multiplying the pension you got in the first year by 20 plus your lump sum. Your pension provider will have more information on this.

How do I pay my tax?

Your pension provider will send you a statement to let you know how much you owe if you go above your lifetime allowance. You’ll need to report this to HMRC by submitting a self assessment tax return. Your pension provider can help you out here.

If my pension is taxable how much tax do I pay?

If you save money into your pension over your lifetime allowance as a lump sum then you’ll pay 55% tax.

If it’s paid in any other way then you pay 25% tax on it.

Compare pension providers

Table: sorted by promoted deals first
Name Product Minimum investment Choose from Fee for a £50,000 pension pot Brand description
Interactive Investor Pension
Any lump sum or £25 a month
Over 3,000 funds
Annual fee: £239.88, fund fees: £50-500
interactive investor is a flat-fee platform, which makes it cost effective for larger portfolios. Capital at risk.
Moneyfarm Pension
£1,500 (initial investment)
7 funds
Moneyfarm has pensions that are matched against your risk appetite, goals and planned retirement date. Capital at risk.
AJ Bell Pension
Over 2,000 funds
Annual fee: £125, includes fund fees
AJ Bell has two different pension options, a self managed pension and one that is managed for you. Capital at risk.
PensionBee Pension
No minimum
9 funds
Annual fee: £250-475, includes fund fees
Pension Bee is a newbie in the pension market. It helps consolidate your pension plans into one place. Capital at risk.
Hargreaves Lansdown Pension
£100 or £25 a month
2,500 funds
Annual fee: £225 (£200 cap if holding shares), fund fees included
Hargreaves Lansdown is the UK's biggest wealth manager. It's got three different retirement options. Capital at risk.
Saxo Markets Pension
Saxo Markets Pension
Over 11,000 funds
No annual fee
Saxo Markets gives flexibility and control over your investment strategy. Capital at risk.
No minimum
4 portfolios
Annual fee: £375-455, fund fees included
Moneybox Pension
3 funds
Annual fee: £225, fund fee: £60
Manage your money with an easy-to-use Moneybox app. Capital at risk.

Compare up to 4 providers

Name Product Price per trade Frequent trader rate Platform fees Brand description
UK: £2.95
US: $3.95
EU: €3.95
Your first 100 trades are free with Fineco (T&Cs apply)
Fineco Bank is good for share traders and investors looking for a complete platform and wide offer. The minimum deposit with Fineco is £0. Capital at risk.
eToro Free Stocks
Capital at risk. 0% commission but other fees may apply. The minimum deposit with eToro is $200.
Hargreaves Lansdown Fund and Share Account
Hargreaves Lansdown is the UK's number one platform for private investors, with the depth of features you'd expect from an established platform. The minimum deposit with HL is £1. Capital at risk.
Degiro Share Dealing
UK: £1.75 + 0.014% (max £5)
US: €0.50 + $0.004 per share
Degiro is widely seen as one of the best low-cost share brokers, for people who are looking to trade regularly. The minimum deposit with Degiro is £0. Capital at risk.
interactive investor Trading Account
£7.99 (with one free trade per month)
£9.99 per month
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. The minimum deposit with ii is £0. Capital at risk.

Compare up to 4 providers

Name Product Minimum deposit Maximum annual fee Price per trade Brand description
InvestEngine stocks and shares ISA
Offer - £50 welcome bonus for new customers. Subject to minimum investment. T&Cs apply. Capital at risk.
Moneybox stocks and shares ISA
0.45% and £1 monthly subscription fee (free for first 3 months)
Moneybox offers a smart and simple way to invest. Sign up in minutes and start investing with £1 via their award-winning app. Capital at risk.
interactive investor stocks and shares ISA
Any lump sum or £25 a month
Interactive Investor offers everything most investors need. Its flat fees makes it pricey for small portfolios, but cheap for big ones. Capital at risk.
Nutmeg stocks and shares ISA
Nutmeg offers three types of portfolios. Choose the one that goes with your investment style. Capital at risk.
Hargreaves Lansdown stocks and shares ISA
Hargreaves Lansdown is the UK's biggest wealth manager. It's got everything you'll need, from beginners to experienced investors. Capital at risk.
Moneyfarm stocks and shares ISA
Moneyfarm helps you meet your investment goals with fully-managed portfolios designed around you. Capital at risk.
Fidelity Stocks and Shares ISA
£1000 or a regular savings plan from £50
Fidelity is another good all-rounder, offering a good package at a decent price. Not suited for trading shares. Capital at risk.
Legal & General stocks and shares ISA
Legal & General stocks and shares ISA
£100 or £20 a month
Legal & General is a big financial services company which offers insurance, lifetime mortgage, pensions and stocks and shares ISAs. Capital at risk.
AJ Bell Stocks and Shares ISA
AJ Bell is a good all-rounder for people who to choose between shares, funds, ISAs and pensions. Capital at risk.
Saxo Markets stocks and shares ISA
No minimum deposit requirement
Saxo Markets offers a wide access to a range of stocks, ETFs and funds. Capital at risk.

Compare up to 4 providers

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.

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