SJP Tax Relief
One of the benefits of saving into a pension is the government boosts your contributions, through tax relief.
What is pension contribution tax relief?
Most pension contributions benefit from income tax relief at your highest marginal rates.
For every pension contribution you make to a personal pension, the government adds another 20% in the form of tax relief. So, if you’re a basic rate taxpayer and you pay in £80, you’ll actually be putting £100 into your pension.
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?
For most basic rate taxpayers, the 20% tax relief is added ‘at source’ which means it’s done automatically when you pay into your pension. If you are a higher, or additional rate taxpayer, then you will still receive 20% at source, but you will also be able to claim the higher or additional rate pensions tax relief (an extra 20% or 25% respectively) via HMRC.
So, if you’re a basic rate taxpayer and wanted to make a gross contribution of £100, you would pay £80 and £20 tax relief would be added at source. For higher rate taxpayers, you still pay £80, receiving £20 tax relief at source, and then claim the further £20 relief via HMRC, so the net cost to you is effectively £60.
Will I automatically get pension tax relief?
All personal pensions, and some workplace pensions, are what’s known as ‘relief-at-source’ pensions. Your pension provider claims the 20% tax relief on your behalf and adds it to your pension pot. You’ll also automatically get the 20% basic rate tax relief if you’re part of a workplace pension where pension contributions are deducted from your pay before income tax – which means that you get the tax relief there and then.
How do I claim pensions tax relief if I’m a higher or additional rate taxpayer?
If you are a higher rate taxpayer, you’ll get 40% tax relief and 45% `as an additional rate taxpayer (the rates are slightly different in Scotland, due to alternate tax bands). This can give your pension fund a substantial cash boost.
However, it’s up to you as a higher or additional rate taxpayer to declare your pension contributions and claim the tax relief via HMRC. It’s not automatically added on at source.
For many workplace pension schemes the full amount of tax relief Is applied Immediately as the contribution is deducted from your pay before income tax Is applied.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
Let us help you find a local adviser
Find a local adviser
Let us help you find your local financial adviser
Find your local financial adviser
