What about tax relief on contributions?

Contributions to any registered pension scheme are subject to the same rules. There is no limit to what contribution can be paid BUT there is a limit to the maximum that can be paid in any one “input” year that may receive tax relief (the “Annual Allowance”) and avoid a tax charge on the member.

The “Annual Allowance” for 2013/2014 tax year is £50,000 reducing to £40,000 on 6 April 2014. This is the total contribution from all sources to all registered pension schemes.

If you have been a member of a pension scheme at any time in the last 3 years there are “carry forward” provisions that enable you to catch up on any shortfall from the maximum allowable contribution in the last 3 years. There is a link to HMRC’s allowance calculator in the Useful Links page.

Personal Contributions

The maximum amount of contributions on which a member can claim relief in any tax year is the greater of:

  • the ‘basic amount’ – currently £3,600, and
  • the amount of the individual’s relevant UK earnings that are chargeable to income tax for the tax year.

Where a member’s relevant UK earnings chargeable to tax are less than £3,600, tax relief on the amount of any contribution over the level of their earnings up to the £3,600 limit can only be given if the contribution is paid to a pension scheme that operates the Relief At Source (RAS) system.

Relevant UK earnings means:

  • employment income,
  • income which is chargeable under Schedule D and is immediately derived from the carrying on or exercise of a trade, profession or vocation (whether individually or as a partner acting personally in a partnership), and
  • income to which section 529 of Income and Corporation Taxes Act 1988 (ICTA) (patent income of an individual in respect of inventions) applies.

Relevant UK earnings are to be treated as not being chargeable to income tax if, in accordance with arrangements having effect by virtue of section 788 of ICTA (double taxation agreements), they are not taxable in the United Kingdom.

Company Contributions

The maximum that a company can contribute for a scheme member and claim Corporation Tax relief in any year is subject to the Annual Allowance test and also be acceptable to their Inspector of Taxes as being wholly and exclusively for business purposes.

Contact us for more about tax relief on contributions.

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