Are there limits to how much tax relief I can get on my pension contributions?
If you are looking at retirement savings then tax is something that will usually come into consideration. For many people, tax relief is a big part of any pension investment and it’s a way of helping to add that extra little bit of money to the pension pot so knowing the amount of tax relief that you are able to obtain on your pension investments goes a long way to helping you choose between your investments at such a crucial stage.
Depending on the amount of your pension income, there are a number of different taxes and tax levels that you might have to pay, so it’s important to do your research thoroughly before choosing how to invest your money at this crucial stage.
How does tax relief on pensions work?
In general, any contributions that were paid before the age of 75 are eligible for tax relief, and this means that you can contribute up to 100% of relevant earnings into your pension pot while receiving tax relief on this investment.
In recent years this amount has changed quite significantly – for the financial year 2009-2010 you were able to claim up to £245,000 in tax relief, this is in stark contrast to the tax year 2011-2012 where you are now only able to claim £50,000.
What is the annual allowance?
For the year 2011-2012 there was a substantial decrease in the annual allowance that a person was entitled to and many people were curious as to how this would affect them. Each year a person is entitled to an annual allowance which covers any pension savings that you or your employer has made on your behalf, this covers the amount of pension money invested that is covered under tax relief. Any amount over this figure is subject to full taxation.
If your relevant earnings happen to be in excess of £50,000 then you may still be eligible to claim tax relief as you can Carry forward your annual allowance from the previous 3 years in some circumstances. It is always best to take professional advice when considering this.