Tax Breaks to boost your Pension

Tax Breaks to boost your Pension

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Pensions offer a unique combination of tax breaks.

These pension tax breaks can significantly enhance the value of your retirement fund, so it is important to make the most of them.

Tax relief on contributions: eligible pension contributions automatically receive basic-rate tax relief (up to certain limits). This means that if you pay £8,000 into your pension, the government adds £2,000 more. Higher-rate taxpayers can claim further tax relief through the annual self-assessment return. On £10,000 a higher-rate taxpayer could claim £2,000, so their contribution costs just £6,000. However, special rules apply for people with income of £150,000 or more.

Tax-efficient growth: assets invested in pension funds can grow free of UK capital gains tax (CGT) and income tax, although tax deducted from dividends’ cannot be reclaimed.

Tax-free lump sum: when you come to take benefits from your pension, you can take up to 25% of your total fund as a tax-free cash sum to spend or invest as you wish. The remainder will be used to generate an income. You will have to pay tax on this income.

Please note that if you reinvest the tax-free cash into a personal pension, there may be a tax charge, subject to certain criteria. Any statements on tax are based on our understanding of current law and practice, which could change in the future. The value of tax benefits will depend on your individual circumstances.

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