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Pension Tax Relief

The annual cost of income tax relief on pension contributions is £67.3 billion. Of this amount 52% is received by higher rate tax payers.

For basic rate taxpayers. personal pension contributions receive tax relief at the rate of 20%. The effect of this is that for every £80 of pension contributions made, the pension provider will claim back £20 from HMRC. Thus for a cost of £80 of contributions , the pension scheme receives gross contributions of £100 of pension.

For higher rate taxpayers, the initial tax releif is the same £20 beiong claimed by the pension scheme for every £80 of contributions). In addition a further 20% tax relief is provided through the self assessment tax return.