Is pension tax relief under threat?

Philip Hammond will unveil his autumn Budget on Monday.

The Financial Times and Telegraph Money have both suggested he could reduce the annual allowance, which is the maximum amount that can be contributed to a pension. For most people, the limit’s currently £40,000. That’s for contributions made by you and your employer.

To get tax relief, your personal contributions can’t be any higher than your earnings, or £3,600, whichever is greater. With tax relief costing the government an estimated £41 billion last tax year, we can see why it’s a tempting target for the chancellor.

Of course it goes without saying, we can’t know for sure if any changes to the current rules will be introduced. But any changes that are announced could take effect immediately.

If you’re one of the almost 4.7 million people paying income tax at the higher or additional rate, your window in which to maximise contributions and receive tax relief under the current rules could be rather small.

Find out more about contributing to a pension

Could you benefit by acting now?

Under the current rules, the government automatically adds 20% to your contribution. Higher rate taxpayers can reclaim further tax relief through their tax return.

*You need to pay enough tax at the higher rate to receive the full amount of relief. Scottish taxpayers can claim different rates of tax relief to the rest of the UK.

Find out more about tax relief for Scottish taxpayers

Remember, once you add money to a pension, you can’t usually take it out until you’re 55 (57 from 2028).

How to invest up to £160,000 using 'carry forward'

Any tax benefits will depend on individual circumstances, and as highlighted, rules can change. Tax relief is only available to people under 75.

How much tax relief could you receive?

Do you have unused allowance?

You can carry forward any unused annual allowance from the last three tax years (up to £40,000 for each year).

This means you might be able to contribute as much as £160,000, and get up to £72,000 in tax relief. If you have any questions, the specialists on our carry forward helpline will be happy to help – 0117 314 1799.

It can work a bit differently for those who have a taxable income over £110,000, or those who’ve already accessed a pension, which might mean your allowance is lower.

How much could you pay in?

Secure your tax relief with a pension contribution

This year, we’ve already claimed £130 million in tax relief for clients who contributed to their HL self-invested personal pension (SIPP).

If you haven’t decided where to invest, you can make your contribution now and simply hold cash while you make your decision. The value of investments can fall as well as rise, so you could get back less than you put in.

This article isn't personal advice. If you're not sure if an investment is right for you, you can always ask us for advice.

More about the HL SIPP