Pensions & Tax
Pensions = One of the most tax efficent product in the UK.
What tax relief do I get on money paid into my pension?
The general rule for personal contributions of the employed is that you make a payment net of basic rate tax and HMRC will pay 20% of the gross amount directly into your pension fund. For example for a £1,000 gross contribution you only need to contribute £800 and HMRC will pay £200. If you are a higher or additional rate taxpayer you can claim extra relief through your tax self-assessment form (different rules apply for self-employed, where all tax relief is claimed via the annual tax return).
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When your employer makes a contribution to your pension the full gross amount is paid into your fund. Employer contributions are tax-deductible expenses, so relief can usually be claimed via the company accounts.
What tax relief do I get on money paid into my pension?
The general rule for personal contributions of the employed is that you make a payment net of basic rate tax and HMRC will pay 20% of the gross amount directly into your pension fund. For example for a £1,000 gross contribution you only need to contribute £800 and HMRC will pay £200. If you are a higher or additional rate taxpayer you can claim extra relief through your tax self-assessment form (different rules apply for self-employed, where all tax relief is claimed via the annual tax return).
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When your employer makes a contribution to your pension the full gross amount is paid into your fund. Employer contributions are tax-deductible expenses, so relief can usually be claimed via the company accounts.
Can I take some of my pension tax-free?
Yes, you can normally take 25% of your pension tax-free. However, this may vary depending on the jurisdiction you are domiciled in.
How much tax will I pay on my pension?
After taking the 25% tax free cash, the rest of your pension income or lump sum will be subject to income tax. You need to take care if you are taking a large sum of money from your pension as it could push you into a higher rate tax band and the tax paid could therefore be a lot higher than you had thought.