Pension tax relief and the tapered annual allowance for high earners

Most UK taxpayers get tax relief on their pension contributions, which means that the government effectively adds money to your pension pot. Basic rate taxpayers get a 25% tax top up; HMRC adds £25 for every £100 you pay into your pension.

Tax relief on UK pensions

When you’re thinking about how much money to save into your pension plan, it’s important to understand how pension tax relief works.

For 2022/23 you can get tax relief on pension contributions up to £40,000 or 100% of your salary (whichever is lower). Any pension contributions that you make over this limit are taxed at the highest rate of tax you pay.

Basic rate taxpayers get a 25% tax top up, so if you paid £100 into your pension, HMRC would effectively add another £25 which would bring the total contribution up to £125. PensionBee will claim this tax top up on your behalf if you’re paying into a PensionBee plan.

Higher and additional rate taxpayers can claim a further 25% and 31% respectively through their Self-Assessment tax returns. You can claim this tax back in three easy steps.

If you earn less than £3,600 annually or don’t earn anything, the maximum amount you can contribute to your pension within the tax threshold is £2,880, bringing your total annual contribution to £3,600 once tax relief is added.

Tapered annual allowance and tax relief

A new tapered allowance has recently been introduced, which affects the pension tax relief limits for high earners. It basically means that if your adjusted income (your income plus pension contributions) is over £240,000, your annual pension tax relief limit is reduced, and the amount tapers all the way down to £4,000 for incomes of £312,000 or more.

This table shows how the tapered allowance works:

Earnings New annual allowance
Up to £240,000 £40,000
£250,000 £35,000
£260,000 £30,000
£270,000 £25,000
£280,000 £20,000
£290,000 £15,000
£300,000 £10,000
£310,000 £5,000
£312,000 £4,000

Claiming tax relief with PensionBee

When you make personal contributions to your PensionBee pension, we’ll add your 25% tax top up automatically! Please note that we’re only able to apply for the standard basic rate tax relief. If you’re a higher-rate tax payer, you’ll need to claim any additional tax relief yourself through your self-assessment tax return.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Last edited: 21-03-2022

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