Published On: Mon, Jan 13th, 2020

Pension tax relief: How some taxpayers can get extra tax relief on contributions explained | Personal Finance | Finance

For example, someone who pays £80 into a personal pension automatically gets an extra £20 in basic rate relief added to their pension.

But if they pay tax at 40percent they are entitled to another £20 in tax relief which they will only get if they enter this information on their tax return.

Note that it is not necessary to enter member contributions to an occupational pension scheme (where full tax relief at the marginal rate is given when the contribution is made) nor contributions made via ‘salary sacrifice’ as such contributions are already paid gross.

2. Report contributions in excess of your annual allowance

Individuals are expected to report on their tax return any pension contributions (from themselves or their employer) into a Defined Contribution pension and/or any growth in Defined Benefit pension rights in excess of the Annual Allowance, so that additional tax can be paid.

Latest figures suggest that the amount contributed in excess of Annual Allowance limits has increased eightfold in the last five years but it is likely that there is still significant under-reporting.

Complications for taxpayers include:

– Knowing what their own Annual Allowance is. The standard Annual Allowance is £40,000 per year, but the situation could be different for those who are:

  • Affected by the ‘Money Purchase Annual Allowance’ – this is people who have accessed some taxable cash from a DC pension and who now have an annual allowance of just £4,000;
  • Affected by the ‘tapered’ Annual Allowance – those with total income and pension contributions over £150,000 can see their annual allowance reduced on a sliding scale to anything between £40,000 and £10,000;
  • Able to ‘carry forward’ unused annual allowances from previous years; the use of ‘carry forward’ enables people to put *more* money into their pension without breaching the annual limit;

– Knowing the amount of pension contributions to include. This needs to cover:

  • Contributions into Defined Contribution pensions, including those made by employer and employee;
  • The growth in value of Defined Benefit pension rights – this is calculated as the growth in annual pension entitlement, net of inflation, multiplied by sixteen; DB pension providers should in principle be supplying this information to scheme members and it is necessary to have this information to complete your tax return;

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