Are pension contributions taxable?

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

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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.

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