Are pension contributions taxable?

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

Promoted
abrdn logo

Get retirement ready with expert advice

  • Dedicated financial adviser
  • Low charges
  • Free 15-minute initial call
Go to site

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:

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 3 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 SIPP providers

1 - 7 of 7
Name Product Brand description Min investment Min monthly investment Number of funds Transfer available Offer Link
NO FEE
Interactive Investor SIPP
interactive investor is a flat-fee platform, which makes it cost effective for larger portfolios. Capital at risk.
£0
£25
3000
Open a SIPP today and pay no fee for your first 6 months. Terms apply. Capital at risk.

Capital at risk

Platform details
Freetrade SIPP
£0
£0
6000

Capital at risk

Platform details
Hargreaves Lansdown SIPP
Hargreaves Lansdown is the UK's biggest wealth manager. It's got three different retirement options. Capital at risk.
£100
£25
2500

Capital at risk

Platform details
BONUS
Penfold SIPP
£0
£0
4 Portfolios
Bonus of up to £1000 for your pension when tranferring to Penfold

Capital at risk

Platform details
Moneyfarm SIPP
Moneyfarm has pensions that are matched against your risk appetite, goals and planned retirement date. Capital at risk.
£1,500
£0
7

Capital at risk

Platform details
AJ Bell SIPP
AJ Bell has two different pension options, a self managed pension and one that is managed for you. Capital at risk.
£1,000
£1
2000

Capital at risk

Platform details
Saxo Markets SIPP
Saxo Markets gives flexibility and control over your investment strategy. Capital at risk.
£10
£0
11000

Capital at risk

Platform details
loading

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.

More guides on Finder

  • How much pension do I need to retire?

    We explain how to work out the retirement income you’ll need, and what you can do if you haven’t saved enough.

  • Taking your entire pension pot

    We outline the pros and cons of withdrawing your whole pension as a cash lump sum, and why this could result in a high tax bill.

  • Retirement and pension advice

    We explain the free and paid-for advice that’s available if you need help to understand your retirement options and make the right choices.

  • Is my pension lump sum taxable?

    Under pension freedoms, you can usually take 25% of your pension as a tax-free lump sum. Here’s what you need to know.

  • Defined benefit and final salary pensions

    Do you have a final salary or career average pension? If so, you’re in a minority. We explain the ins and outs of defined benefit pensions.

  • Moneyfarm pension review

    We outline the pros and cons of Moneyfarm’s personal pension to help you decide if it’s the right home for your retirement savings.

  • Plum pension review

    Plum’s clever micro-saving algorithm makes it easy to drip-feed your retirement savings. But is its personal pension worth having overall?

  • Taking money from your pension

    We give you the lowdown on when you can access the money in your pension pot, and how pension freedoms work.

  • Can I get my pension contributions back?

    Find out about getting your pension contributions back and how to get a refund.

  • Pension recycling

    We explain the potential tax benefits and the limitations of taking money out of one pension and recycling it into another.

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site