SJP Tax Relief

What are the benefits of tax relief?

One of the benefits of saving into a pension is the government boosts your contributions, through tax relief.

The tax relief you can receive depends on your income tax rate.

This means that if you are a basic rate tax payer, you will receive an extra 20% on your eligible contributions.

If you are a higher rate taxpayer it's 40%, and 45% if you are an additional rate tax payer. The rates are slightly different in Scotland, due to alternate tax bands.

However, this assumes that not only are you eligible for the additional tax relief, but that it is reclaimed via your annual tax return. Your pension will only benefit from the additional tax relief, if it is reinvested into your pension.

tex relief

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

How does pension tax relief work?

How it works is that 20% is added ‘at source’, which means it is done automatically for you when you pay in to your pension. If you are a higher, or additional rate taxpayer, then you will still receive 20% at source, but you will be able to reclaim the additional tax relief back through your tax return.

So in the above example, if you are a basic rate taxpayer and wanted to make a gross contribution of £100, you would pay £80, receiving £20 tax relief at source. For higher rate taxpayers, you still pay £80, receiving £20 tax relief at source, and then claim the further £20 through your tax return, so that the net cost is effectively £60.

How do I get my pension tax relief?

You’ll automatically get the 20% basic rate tax relief:

  • If you’re part of a workplace pension where your pension contributions are deducted from your pay before income tax – this means that you get the tax relief there and then. This is known as a ‘net pay’ arrangement.
  • If your pension provider claims the 20% tax relief on your behalf and adds it to your pension pot. This is known as a ‘relief-at-source’ arrangement. All personal pensions, and some workplace pensions, are relief-at-source pension.

How do I claim additional pension tax relief?

If you are a higher rate, or additional rate tax payer, then you will be able to reclaim your further tax relief on your pension contributions through your annual tax return.

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SJP Approved 05/04/2024