Calculating Pension Tax Relief
When you contribute to a pension, you get pension tax relief at your highest marginal rate of income tax. There are three income tax brackets, meaning you currently receive pension tax relief on contributions at:
- 20% if you’re a basic rate taxpayer (earning between £11,501 and £45,000 in 2017/18)
- 40% if you’re a higher rate taxpayer (earning between £45,001 and £150,000 in 2017/18)
- 45% if you’re an additional rate taxpayer (earning more than £150,000 in 2017/18).
Even if you’re a non taxpayer, perhaps because you’re not working or earn less than £11,500 in 2017/18, you can still claim pension tax relief at 20% on payments you make into your pension. The maximum you can pay into your pension and still receive tax relief as a non-taxpayer in 2017/18 £3,600 – £2,880 from you and £720 in pension tax relief from HMRC.
Earning over £100k? Reclaiming your personal allowance…
The calculations also factor in any tax rebate you might receive when you make pension contributions that reduce your take home pay and regain any lost income tax personal allowance, which begins to taper off once your income reaches more than £100,000.
Pension Tax Relief Calculator
Your Pension Tax Relief Result
Pension tax relief means only a proportion of your desired pension contribution will have to come out of your own pocket ('Net Pension Contribution'). The remainder is topped up by the government in the form of tax relief to form your total 'gross' pension contribution. Below we've calculated how much you'll have to pay into your pension to receive a government top-up that will equal your desired total gross contribution this tax year.
20% Tax Relief Added at Source
The government automatically adds 20% tax relief to pension contributions within your annual allowance.
Get More For Your Money Through Your Tax Return
As you're a higher rate (40%) taxpayer, you can reclaim additional pension tax relief through your tax return. The government automatically adds basic rate (20%) tax relief to all pension contributions at the source. The remaining tax relief is reclaimed through your tax return.
As you're an additional (45%) taxpayer, you can reclaim additional pension tax relief through your tax return. The government automatically adds basic rate (20%) tax relief to all pension contributions at the source. The remaining tax relief is reclaimed through your tax return and may be made up of a combination of additional rate tax relief and reclaimed income tax personal allowance.
How this calculator works...
Drewberry has calculated the tax relief you may be able to receive based on you being a 0% taxpayer, a basic rate (20%) taxpayer, a higher (40%) taxpayer or an additional (45%) taxpayer in the 2017/18 tax year.
We've also calculated the benefit to you based on the fact that you may regain some of your lost income tax personal allowance by making pension contributions if you earn between £100,000 and £123,000. However, there are many other factors that may affect your eligibility for tax relief on your pension contributions, including your age – for example, tax relief on pension contributions stops once you reach the age of 75.
These calculators help but sometimes it doesn't beat talking to a human. If you
need any support please do not hesitate to pop us a call on 02084327333.
Head of Pensions Advice at Drewberry
Download our latest FREE e-Guides
The Drewberry 'Making Sense' guides are here to cut through the jargon so you can understand how to make the most of your wealth.
Download our series of guides for help making the right decisions for your financial future.
Claiming Tax Relief on Pension Contributions
Most pension schemes automatically claim basic rate tax relief at 20% on your pension contributions whenever you make a pension payment.
However, if you’re one of the few people whose pension isn’t set up for automatic tax relief (also known as tax relief at source), you’ll have to reclaim pension tax relief through your tax return.
Everyone in the higher (40%) or additional (45%) tax brackets will also need to apply for the additional tax relief on pension contributions via their self-assessment tax return. Only 20% tax relief is added automatically, so don’t forget to reclaim everything you’re owed in pension relief!
Don’t forget, even after you apply for higher and additional rate pension tax relief from HMRC that extra cash doesn’t get paid straight into your pension as with basic rate tax relief.
Instead, most people get an adjustment to their tax code for the year, reducing their annual tax bill by an amount equivalent to the extra pension tax relief HMRC owes you. It’s up to you to pay that extra cash from a lower tax bill into your pension.
Wealth Administrator at Drewberry
Need Pension Tax Relief Advice?
While it’s useful to see how your pension contributions are boosted by tax relief, it’s important you take a wider view of your retirement plans than simply looking at the how much pension tax relief you’re owed.
This includes making sure you’re actually paying enough into your pension in the first place. Many people underestimate how much they need to pay into their pension and so don’t properly plan for their retirement. Other issues to consider are when you want to retire and how much money you’ll need in your pot to do so.
The ins and outs of arranging a pension and providing you with a retirement income are more complicated than just looking at tax relief on pension contributions, but the team at Drewberry is here to help.
If you need advice on pension tax relief or help in any other area of pension planning, don’t hesitate to pop us a call on 02084327333 or email your details to firstname.lastname@example.org.
Pensions & Investments Expert at Drewberry