Am I eligible for tax relief on my contributions?
To be eligible for tax relief, you must be under the age of 75 and classed as a ‘relevant UK individual’.
To be a relevant UK individual, you’ll need to be in at least one of the following categories:
- You are/were a UK resident for tax purposes at some point during the current tax year
- You are/were a UK resident for tax purposes at some point during the last five tax years, and when signing up to PensionBee
- You have a spouse/civil partner with general earnings from overseas Crown employment, subject to UK tax
- You have ‘relevant UK earnings’*, subject to income tax
*Relevant UK earnings are normally your total taxable earnings from UK-based work. This includes earnings from employment, self-employment and bonuses. It generally doesn’t include any investment income.
You are generally unable to claim tax-relief on contributions above your relevant earnings. If you earn less than £3,600 annually or don’t earn anything, the maximum amount you can contribute to your pension whilst receiving tax-relief is £2,880 net, bringing your total annual contribution to £3,600 gross once tax relief is added.
What’s the difference between a tax top up and tax relief?
If you’re a registered tax payer, you won’t have to pay tax on your pension contributions (up to a limit). This is known as tax relief.
The amount of tax relief you receive is dependent on the amount of income tax you pay. For most people, it’s 20%.
This means that for every £100 you contribute to your pension, £20 of that is claimed back as tax relief. In effect, you only have to pay in £80 for every £100 that lands in your pension.
Here’s another way to think of it... for every £80 you personally contribute to your pension, the government tops it up by £20. In effect, you receive a 25% tax top up.
So whether you view it as 20% tax relief or a 25% tax top up, the result is the same.
Can I drawdown part of my 25% tax free cash now, and some at a later date?
Yes, for customers over the age of 55 (expected to rise to 57 in 2028), PensionBee offers the ability to be completely flexible with your drawdown. It is important to consider the pension “recycling rules” if you intend on making pension contributions following a withdrawal. Pension recycling is where an individual reinvests either their tax free cash or pension income back into a pension scheme and may be subject to tax penalties.
Can I claim tax relief if I’m not based in the UK?
Yes, as long as you’re still classified as a ‘relevant UK individual’*.
To be a relevant UK individual, you’ll need to be in at least one of the following categories:
- You are/were a UK resident for tax purposes at some point during the current tax year
- You are/were a UK resident for tax purposes at some point during the last five tax years, and when signing up to PensionBee
- You have a spouse/civil partner with general earnings from overseas Crown employment, subject to UK tax
- You have ‘relevant UK earnings’**, subject to income tax
*If you’re not classified as a relevant UK individual, you won’t be able to claim tax relief.
**Relevant UK earnings are normally your total taxable earnings from UK-based work. This includes earnings from employment, self-employment and bonuses. It generally doesn’t include any investment income.
How do I claim back higher or additional rate tax relief?
Higher and additional rate taxpayers can claim a further 25% and 31% respectively through their Self-Assessment tax returns. This is relevant to tax rates in England, Wales and Northern Ireland. For Scotland there are different applicable rates which you can read more about on the HMRC website. It may be necessary to register for Self-Assessment first if you’ve never filled out a tax return before. Once registered, you can submit returns for the previous tax year from 6 April each year. For example, from 6 April 2024, you’ll be able to file a tax return for your earnings from 6 April 2023 to 5 April 2024. The deadline to submit a return online is 31 January the following year. You can call or write to HMRC to claim it if you don’t fill in a Self-Assessment tax return.
