How to Claim Pension Tax Relief in Self Assessment
Updated: Mar 16
Pension tax relief is a tax incentive provided by the UK government to encourage individuals to save for their retirement. If you are a UK taxpayer, you can claim pension tax relief on your contributions to a pension scheme, reducing the amount of tax you need to pay on your income. In this article, we will discuss how to claim pension tax relief on your self-assessment form in the UK.
Determine Your Eligibility: To claim pension tax relief, you must be a UK taxpayer and have made contributions to a pension scheme that is eligible for tax relief. This includes personal pensions, workplace pensions, and stakeholder pensions.
Calculate The Amount of Tax Relief Due: The amount of tax relief you can claim depends on the number of contributions you have made and your marginal rate of income tax. For basic rate taxpayers, the government will automatically add 20% tax relief to their pension contributions, while higher rate taxpayers can claim back an additional 20% or 25% through their self-assessment tax return.
Gather Supporting Documentation: You will need to provide proof of your pension contributions in order to claim pension tax relief. This could be in the form of a statement from your pension provider, or a P60 or P45 if you are receiving a pension from an employer.
Complete The Self-Assessment Form: To claim pension tax relief, you will need to complete a self-assessment tax return. This form must be submitted by the deadline of 31st January each year. When completing the form, you will need to declare your total taxable income, including any pension contributions, and the amount of pension tax relief you are claiming.
Submit The Self-Assessment Form: Once you have completed the self-assessment form, you will need to submit it to HM Revenue & Customs (HMRC). You can do this online through the HMRC website, or by post if you prefer.
Receive Your Tax Refund: If your claim for pension tax relief is accepted, HMRC will calculate the amount of tax relief due and issue a refund, which will be paid directly into your bank account.
It's important to note that the rules around pension tax relief can be complex and are subject to change, so it is advisable to seek the assistance of a professional, such as an accountant, to ensure that your claim is made correctly.
How Can I Check My Pension Contributions?
If you're enrolled in a workplace pension scheme, you can check your pension contributions in the UK by following these steps:
Check your payslip: Your payslip should show your pension contributions for the current pay period, along with any employer contributions.
Check your pension statement: Your pension provider should send you an annual statement that outlines your contributions for the year, along with details on any charges or fees.
Log into your online pension account: Many pension providers offer online portals where you can log in and check your pension contributions, as well as your pension balance and investment performance.
Contact your pension provider: If you don't have access to an online account or need more detailed information, you can contact your pension provider directly and ask for details on your contributions.
If you're not sure which pension scheme you're enrolled in, you can check with your employer or contact the Pension Tracing Service, which can help you track down any pension schemes you may have contributed to in the past.
When Can I Claim My Tax Back as Pension Tax Relief?
If you're a UK taxpayer and you're contributing to a pension scheme, you can claim tax relief on your contributions. The timing of when you can claim your tax relief will depend on the type of pension scheme you're contributing to and how you make your contributions:
Workplace pension scheme: If you're enrolled in a workplace pension scheme, your employer will deduct your pension contributions from your salary before calculating your tax liability. This means you'll receive tax relief automatically through the PAYE (Pay As You Earn) system, and you won't need to make a separate claim.
Personal pension scheme: If you're contributing to a personal pension scheme, you'll need to claim tax relief separately. You can do this by contacting HM Revenue and Customs (HMRC) or by filling out a Self Assessment tax return. You'll be able to claim tax relief at the basic rate of 20%, which means that for every £100 you contribute to your pension, HMRC will add an extra £25 to your pension pot.
Stakeholder pension scheme: If you're contributing to a stakeholder pension scheme, you can claim tax relief in the same way as a personal pension scheme, by contacting HMRC or filling out a Self Assessment tax return.
It's worth noting that there are annual limits on how much you can contribute to a pension and still receive tax relief, so it's important to check the current limits and rules before making contributions.
What are the Limits On Pension Tax Relief?
In the UK, there are annual limits on the number of pension contributions that can qualify for tax relief. The limits depend on your earnings and the type of pension scheme you're contributing to. Here are the current limits:
Annual allowance: The annual allowance is the maximum amount of pension contributions that can qualify for tax relief each year. For the tax year 2022/23, the annual allowance is £40,000. This means that you can contribute up to £40,000 to your pension and receive tax relief on that amount.
Money Purchase Annual Allowance (MPAA): If you've already started accessing your pension pot through a flexible access drawdown, then your annual allowance will reduce to the MPAA of £4,000 for the tax year 2022/23. This means that you can only contribute up to £4,000 to your pension and receive tax relief on that amount.
Lifetime allowance: The lifetime allowance is the maximum amount you can save in your pension over your lifetime before you're subject to additional tax charges. For the tax year 2022/23, the lifetime allowance is £1,073,100.
It's important to note that the annual allowance and lifetime allowance can be reduced for high earners, and there are also different rules for defined benefit pension schemes. It's always a good idea to seek professional financial advice if you're unsure about the limits and rules surrounding pension tax relief in the UK.
After 6th April 2023
From 6th April 2023, the maximum annual tax-free limit will rise from £4,000 to £10,000. Meanwhile, the amount you can store in your pension tax-free each year is likewise set to rise, as is the amount you can keep in pensions over an entire life. This was announced by the Chancellor Jeremy Hunt in the Budget speech.
If you start to take money from 'described contribution' pensions, the amount you could pay in and still get tax alleviation will reduce notably. Known as the 'Money Purchase Annual Allowance', is present £4,000 a year and will rise to £10,000 a yr from 6 April 2023. This means that in case you were to take money out of your pension, the money you will be allowed to pay back in, with tax relief, will drop to £10,000 from £60,000 from 6 April 2023.
You can still get tax relief on up to 100% of your earnings only if it is below the annual threshold. So, if you earn £25,000 a year, this is the amount you can pay into your pension each year while still receiving tax relief.
How is Basic Rate Tax Relief Given?
In the UK, basic rate tax relief is given on pension contributions made to a personal or stakeholder pension scheme. Basic rate tax relief is currently set at 20%, which means that for every £100 you contribute to your pension, HM Revenue and Customs (HMRC) will add an extra £25 to your pension pot.
The way basic rate tax relief is given depends on the type of pension scheme you're contributing to:
Personal pension scheme: If you're contributing to a personal pension scheme, you can claim tax relief on your contributions through HMRC. This can be done in one of two ways:
Net pay: If your pension scheme operates a net pay arrangement, your employer deducts your pension contributions from your salary before calculating your tax liability. This means you receive tax relief automatically through the PAYE (Pay As You Earn) system, and you won't need to make a separate claim.
Relief at source: If your pension scheme operates a relief at source arrangement, your pension provider claims the tax relief on your behalf from HMRC. This means you'll need to make a separate claim for tax relief by filling out a self-assessment tax return, or by contacting HMRC directly.
Stakeholder pension scheme: If you're contributing to a stakeholder pension scheme, you can claim tax relief in the same way as a personal pension scheme, either through a net pay or relief at source arrangement.
It's worth noting that there are limits on the number of pension contributions that can qualify for tax relief each year, as well as the lifetime allowance for pension savings. It's always a good idea to seek professional financial advice if you're unsure about the rules and regulations surrounding pension tax relief in the UK.
How is Higher Rate Tax Relief Calculated in the UK?
In the UK, higher rate tax relief on pension contributions is calculated at the individual's marginal tax rate, which is determined by their income tax band. The higher rate tax relief is currently set at 40%, which means that if you're a higher rate taxpayer, you can claim an additional 20% tax relief on top of the basic rate tax relief of 20%.
Here's an example of how higher rate tax relief on pension contributions is calculated:
Suppose you earn £50,000 per year and make a £10,000 contribution to your pension. Here's how the tax relief would be calculated:
The first £3,000 of your pension contribution would receive basic rate tax relief at 20%, which is £600.
The remaining £7,000 of your pension contribution would receive higher rate tax relief at 40%, which is £2,800.
So in total, your pension contribution of £10,000 would receive tax relief of £3,400, which is made up of £2,000 basic rate tax relief and £1,400 higher rate tax relief.
It's important to note that the amount of higher rate tax relief you can claim depends on your income and tax band, as well as any other deductions and allowances you're eligible for. It's always a good idea to seek professional financial advice if you're unsure about the rules and regulations surrounding pension tax relief in the UK.
How is Higher Rate Tax Relief Claimed?
Higher rate tax relief in the UK can be claimed through the annual self-assessment tax return process. Here are the steps to claim higher rate tax relief:
Make a pension contribution: If you make a contribution to a UK-registered pension scheme, you are entitled to tax relief on your contribution. The amount of tax relief you can claim will depend on your income tax rate.
Obtain a pension statement: Once you make a contribution to a pension scheme, you will receive a statement from your pension provider which will show the amount you have contributed and the tax relief you have received.
Complete the self-assessment tax return: When you complete your self-assessment tax return, you will need to enter the amount you have contributed to your pension scheme in the relevant section of the return.
Claim higher rate tax relief: If you are a higher rate taxpayer, you can claim additional tax relief on your pension contributions. This can be done by entering the amount of your contribution on the self-assessment tax return and completing the relevant section for higher-rate tax relief.
Receive the tax relief: If you are eligible for higher rate tax relief, HM Revenue and Customs (HMRC) will calculate the amount of relief you are entitled to and adjust your tax bill accordingly.
It is important to note that the rules and regulations for claiming higher rate tax relief can be complex and may vary depending on your individual circumstances. It may be helpful to consult with a financial advisor or tax specialist to ensure that you are claiming the correct amount of tax relief.
In conclusion, claiming pension tax relief through the self-assessment tax return in the UK is a straightforward process, but it is important to ensure that you are eligible to claim and that you have all the necessary documentation. By claiming pension tax relief, you can reduce the amount of tax you need to pay on your income, helping you to save more for your retirement.