Pension Tax Relief
A government top-up on pension contributions that effectively returns income tax paid on the contributed amount, making pensions a highly tax-efficient saving vehicle. Basic-rate taxpayers get 20% relief, higher-rate taxpayers can claim 40%, and additional-rate taxpayers 45%. The mechanism for claiming the relief depends on whether your pension operates on a relief-at-source or net pay basis.
Related Terms
Annual Allowance
The maximum amount you can contribute to registered pension schemes each tax year while still receiving tax relief, currently set at £60,000.
Tapered Annual Allowance
A reduced Annual Allowance for individuals whose adjusted income exceeds £260,000, with the allowance reduced by £1 for every £2 of income above that threshold.
Carry Forward
A pension allowance rule that lets you use any unused Annual Allowance from the previous three tax years, potentially allowing contributions well above the current year's £60,000 limit.
Relief at Source
A method of pension tax relief where you contribute from your net (after-tax) pay and the pension provider claims basic-rate tax relief of 20% directly from HMRC, topping up your pension automatically.
Salary Sacrifice
An arrangement where you give up part of your salary in exchange for a non-cash benefit such as employer pension contributions, a cycle-to-work scheme, or an electric car.
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