View the related Tax Guidance about Tax relief on pension contributions
Tax relief for pension contributions
Tax relief for pension contributionsThe completion of boxes 1 to 4 at the top of page TR4 of the main tax return allows a taxpayer to claim tax relief on pension contributions made in the tax year.Most contributions to registered pension schemes are paid net of basic rate tax relief (via a relief at source scheme), so the only additional relief sought by entry on the tax return is relief at higher rates of tax.For Scottish taxpayers, relief at source is at the Scottish basic rate. From 2017/18 onwards, due to the divergence in the Scottish bands and rates from the rest of the UK, multiple bands need to be extended where pension contributions are paid to relief at source schemes. Scottish tax bands need to be extended for calculating tax on non-savings, non-dividend income. UK tax bands need to be extended for calculating tax on savings and dividend income of Scottish taxpayers. This is discussed further below.Contributions are paid gross to occupational schemes that use a net pay arrangement.For the meaning of a registered pension scheme, relief at source scheme and net pay arrangement, see the Pensions glossary of terms guidance note.The tax relief available for pension contributions is summarised in the Flowchart ― tax relief for contributions to a UK registered pension scheme.Conditions for tax relief to be claimedRelevant UK individualTo obtain tax relief on pension contributions, the scheme member must be a relevant UK individual. This means that the individual must:•have relevant UK earnings chargeable
Pensions and divorce ― marriage or civil partnership breakdown
Pensions and divorce ― marriage or civil partnership breakdownSTOP PRESS: This guidance note may be affected by the changes to the taxation of pensions made by FA 2024, Sch 9 from 6 April 2024 onwards. The commentary below covers the rules that apply prior to that date. Before continuing your research, see the Abolition of the lifetime allowance guidance note.When a married couple divorces or a civil partnership is dissolved, there is likely to be a sharing out of the assets belonging to the former couple.Accrued pension benefits, whether in a defined contribution or defined benefit pension scheme, may be a major asset. With the automatic enrolment of many employees into workplace pensions, this is only likely to increase.If either or both of the parties to the marriage or partnership have accrued pension rights, then these are viewed by the court as part of the former couple’s assets for disposition on divorce.If a prenuptial agreement is in place, and if it was freely entered into by each party with a full appreciation of its implication, the courts may uphold it, unless it would not be fair to hold the parties to it. While it is outside the scope of this guidance note to discuss the validity of prenuptial agreements, you should note that the existence of such a document could impact on pension arrangements on a break-up.In this guidance note ‘marriage’ applies similarly to civil partnerships, ‘divorce’ applies similarly to the dissolution of a civil partnership and ‘spouse’ applies
Non-UK pension schemes ― overview
Non-UK pension schemes ― overviewIntroductionThis guidance note examines the tax regime associated with overseas pensions and considers how it applies to those who relocate to work or retire overseas.Those who decide to emigrate from the UK may continue to be, or decide to become, members of UK-registered pension schemes subject to certain conditions.Living overseas and retaining membership of or joining a registered pension schemeSince 6 April 2006, membership of a UK-registered pension scheme has been open to anyone regardless of where they are resident. Neither is there any restriction on the amount that can be contributed by an overseas resident individual, or by an employer in respect of overseas resident individuals. However, relief from UK income tax may not be available or may be restricted on contributions made by the scheme member and / or their employer where applicable.Member contributionsRelief from UK income tax on contributions by an individual to a registered pension scheme is dependent on their being a ‘relevant UK individual’ during a tax year.There is an annual limit for UK tax-relieved pension contributions, which is the greater of 100% of the individual’s UK relevant earnings that are chargeable to income tax in the UK and £3,600. The annual allowance (set out in FA 2004, s 228) applies in the same way as it applies to UK resident pension scheme members. For the definition of relevant UK earnings, see the Member pension contributions to registered pension schemes guidance note. The term ‘relevant UK individual’ means an individual
Pension contributions and pension advice
Pension contributions and pension adviceSince automatic enrolment was implemented, most employers are obliged to enrol employees meeting certain conditions within a pension scheme unless the employee opts out. See the Automatic enrolment ― overview guidance note).Contributions in respect of individual employees may be made by the employer to an occupational scheme or to a personal pension scheme.Such contributions are free of tax and NIC. Many employers offer a salary sacrifice arrangement so that employees forfeit part of their salary and, in exchange, the employer makes an increased pension contribution. For employees, this will save tax and NIC on the salary they would otherwise receive. Where this replaces a personal contribution by the employee, they will save NIC at the appropriate rate (see the Overview of NIC Classes, rates and thresholds guidance note) depending on their level of earnings on these contributions to the pension. Given that the employer would pay secondary Class 1 NIC on the salary that the employee would use to make the pension contributions on their own behalf, there is also an incentive for the employer to offer this type of salary sacrifice arrangement. See the Salary sacrifice and pensions guidance note.Autumn Statement 2023 ― pensions reformIn the Autumn Statement 2023, the Government announced a whole suite of policies around pensions reform. This includes publishing nine documents including consultation outcomes, calls for evidence and research and analysis papers. These cover a wide range of issues on pensions around how to make it easier for individuals to
Member pension contributions to registered pension schemes
Member pension contributions to registered pension schemesIntroductionFor many years, the UK has operated a system which encourages private pension provision through a system of tax reliefs.The operation of the taxation system associated with pensions was radically reformed in Finance Act 2004 which effectively disposed of a complex system that had developed since the last occasion of radical reform in 1970. This new basis was introduced with effect from 6 April 2006 as a consequence of the provisions contained in Finance Act 2004.The registered pension scheme rules will specify who can join it. There are no HMRC restrictions on who is allowed to join a specific scheme and even non-UK residents may join a registered pension scheme if
Employer obligations for those running a small payroll
Employer obligations for those running a small payrollPAYE procedures applicable for new or smaller employersThis guidance note sets out a number of payroll considerations which may be particularly relevant for new or smaller employers, and provides appropriate signposting where additional guidance may be found. Whilst most general PAYE tax and NIC rules apply equally to all employers, there are certain rules and processes which are more likely to be relevant when starting a new payroll, especially if this is a smaller employer.In making payment to an employee, the PAYE treatment of an item (ie whether or not the payment is subject to tax deduction) is usually matched by the NIC treatment, however this is not always the case. In addition, the methods by which PAYE tax and NIC are actually calculated differ. This document highlights some of the key differences.For additional explanation of some of the terms used in this and other guidance notes relating to payroll matters, see the A–Z of payroll guidance note. Simon’s Taxes Division E4.11 also provides a more detailed analysis of the common employer payroll PAYE and NIC deduction reporting and payment obligations. Much of HMRC’s general views on how PAYE should be applied is spread across the GOV.UK site. However, for a more definitive and consolidated technical view on how HMRC believes particular payments should be treated, reference may be made to the CWG2 further guide to PAYE and National Insurance contributions.Basic principles of the PAYE systemIs the person hired an employee?On basic
Treatment of pension contributions to non-UK pension schemes
Treatment of pension contributions to non-UK pension schemesIntroductionThis guidance note sets out the part of the tax regime associated with overseas pensions. It looks at how those rules operate in relation to those individuals who decide to live in the UK and continue to make pension contributions to the overseas pension scheme of which they were a member before their arrival in the UK.Migrant member reliefAs well as migrant workers having the option of obtaining tax relief through participation in a UK-registered pension scheme, migrant workers who come to the UK as existing members of overseas pension schemes can, if certain conditions are met, claim migrant member relief. This allows UK tax relief on pension contributions made to that existing overseas scheme. This applies where the migrant worker continues to make contributions to the overseas scheme whilst in the UK, just as if those contributions were made to a UK-registered pension scheme.Migrant member relief is available where the individual has come to the UK as an existing overseas scheme member and qualified for tax relief on contributions in respect of that scheme in their previous country of residence.However, the scheme must be recognised by HMRC as a Qualifying Overseas Pension Scheme which involves it meeting prescribed conditions described below and the overseas scheme administrator making a number of undertakings via form APSS250.Qualifying Overseas Pension SchemeIn order to be considered a Qualifying Overseas Pension Scheme, the scheme must satisfy requirements relating to the regulation of the scheme in the country
Employer contributions to registered pension schemes
Employer contributions to registered pension schemesIntroductionFor many years, the UK has operated a system which encourages private pension provision through a system of tax reliefs.The operation of the taxation system associated with pensions was radically reformed in FA 2004, Pt 4, which effectively disposed of a complex system that had developed since the last occasion of radical reform in 1970. This new basis was introduced with effect from 6 April 2006 through the provisions contained in FA 2004.The rules of any registered pension scheme will specify who can join it. There are no HMRC restrictions on who is allowed to join a specific scheme, even non-UK residents may join a registered pension scheme if the scheme rules permit.Contributions may be paid by the scheme member, a third party on behalf of the member, or a member’s employer or former employer. Where a third party pays a contribution, those contributions are treated as if they had been paid by the member, ie they count towards the member’s annual allowance.Pensions taxation lifecycleThe taxation life-cycle of private pension arrangements can be divided into three stages. At each point, there are tax implications for the member and, where applicable, the member’s employer. For further details see the Taxation of pension contributions - overview guidance note.Tax relief on employer contributions and
Pension contributions by owner managed companies
Pension contributions by owner managed companiesThe tax treatment of pension contributions is complicated and can require specialist advice. This guidance note summarises the treatment of pension contributions into a registered pension scheme by owner managed companies and the relevant restrictions or planning points which apply.For more detailed information on registered pension schemes, see the Taxation of pension contributions ― overview guidance note.Unless advisers are suitably qualified and authorised to give investment advice, it is vital that they do not give investment advice of any sort. This includes advice concerning pensions. Advice should be restricted to the tax consequences of making contributions. For further information, see the Regulated investment advice guidance note.Advantages of registered pension schemesThere are several advantages to using registered pension schemes to extract profits for owner-managed businesses:•taxpayers receive a measure of tax relief on pension contributions which they personally make to their pension schemes (see ‘Member contributions ― methods of tax relief’ below)•employer contributions are allowable deductions from trading profits to the extent that they are wholly and exclusively for the purpose of the trade. See the Allowable deductions for employee-related expenses guidance note•employer contributions are n tax and NIC free benefit from the employee’s perspective (see below)•the scheme does not pay income tax on interest / dividend income or CGT on capital gains generated from its investments. See the Taxation of pension contributions ― overview guidance note•on retirement taxpayers can draw a tax-free lump sum from the scheme (which may be
Money purchase annual allowance
Money purchase annual allowanceSTOP PRESS: This guidance note may be affected by the changes to the taxation of pensions made by FA 2024, Sch 9 from 6 April 2024 onwards. The commentary below covers the rules that apply prior to that date. Before continuing your research, see the Abolition of the lifetime allowance guidance note.IntroductionAs discussed in the Annual allowance guidance note, the annual allowance in relation to registered pension schemes is the maximum amount:•by which a member’s benefits can increase in a pension input period (for defined benefit schemes), plus•that can be contributed to pension arrangements in a pension input period (for defined contribution or money purchase schemes)The total of these figures is the pension input amount.If the pension input amount exceeds the annual allowance (£60,000 from the 2023/24 tax year onwards), there is a tax charge on the excess (known as the annual allowance charge) on the member.The purpose of the annual allowance is to set a limit on the extent to which people are able to accumulate additional tax privileged pension funds each year.In order to reduce the risk of funds being recycled as a consequence of the introduction of the more flexible benefits regime with effect from 6 April 2015, a new form of annual allowance was introduced for those who decide to take benefit in the form of flexi-access drawdown.The money purchase annual allowance (MPAA) is designed to ensure that individuals do not exploit the new system to gain unintended tax advantages.The
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