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Pensions and your self-assessment tax return – what you need to know

Self-employed or a high earner? Here are our top tips to help lower your tax bill before the 31 January self-assessment deadline.

Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

If you work for yourself or you’re a high earner, you could miss out on vital tax benefits if you don’t include certain pension details on your tax return.

There are other pension pitfalls for high earners too and in some cases, you could give up valuable National Insurance credits that count towards your State Pension.

Here’s how.

This isn’t personal advice. Pension and tax rules can change, and any benefits depend on your circumstances. Pensions are meant for retirement, so you can't normally access your money until age 55 (rising to 57 from 2028). If you’re not sure what’s right for you, ask for financial advice.

How can adding money to my pension reduce my tax bill?

If you’re resident in the UK for tax purposes and under 75, you can get tax relief on pension contributions. You’ll automatically get basic-rate tax relief (currently 20%) paid into your pension by the government. But, if you pay tax at a higher rate, you could claim back up to 25% more (or 26% for Scottish taxpayers - 27% from the 2023/24 tax year).

However, to claim it you’ll need to declare your pension contributions on your tax return.

When you complete your tax return this year, make sure you include the pension contributions you made in the 2022/23 tax year (6 April 2022 to 5 April 2023). If you pay tax at a higher rate, it could go some way in helping lower your tax bill.

Any additional tax relief will be paid directly to you, by adjusting your tax code or by reducing your tax bill.

How much can I pay into a pension and get tax relief on?

You can get tax relief on personal pension contributions up to 100% of your earnings, or £3,600 if this is more.

Your pension contributions are also limited by the annual allowance, which is currently £60,000 each tax year for most people.

Your personal limit might be higher or lower depending on your circumstances. Like if you’re a high earner with ‘adjusted income’ of over £260,000, your annual allowance could be as little as £10,000.

How to add your pension contributions to your tax return

In the ‘Tax reliefs’ section of your tax return, under ‘Payments to registered pension schemes where basic-rate tax relief will be claimed by your pension provider’, include the total gross value of your personal pension contributions.

Even if you forgot to include these details, and you completed your tax return online, you can still log back in and make changes before the 31 January deadline.

Haven’t got a pension?

If you’re happy making your own investment decisions, you could think about opening a Self-Invested Personal Pension (SIPP).

Lots of people who work for themselves or are high earners use private pensions, like a SIPP, because of the wide investment choice, and the control they offer, compared to other options.

If you’d like to learn more, download one of our SIPP guides below.

Investments can go up as well as down in value, so you could get back less than you invest.

The high-income child benefit tax charge and State Pension

If you earn over £50,000 and you or your partner have registered for and claim child benefit, you’ll be liable for the high-income child benefit tax charge. This would need to be paid through your self-assessment.

The charge increases gradually depending on how much you earn. For those earning £60,000 or more, it’s equal to the total amount of the child benefit. This means lots of people choose not to claim child benefit because they have to repay it through their tax return.

But by not claiming, you or your partner might miss out on National Insurance credits that count towards your State Pension.

There’s the option to register for child benefit but opt to not receive it. That way you don’t have to pay the tax charge but can still benefit from National Insurance credits.

What if I can’t afford to pay my tax bill on time?

If you file your tax return late or make a late payment, you’ll usually face a penalty.

In some circumstances you might be able to set up a payment plan to pay it in instalments. This is called a ‘Time to Pay’ arrangement.

You won’t be able to set up a payment plan if HMRC doesn’t think you’ll keep up with the repayments. If HMRC can’t agree a payment plan with you, they’ll ask you to pay the amount you owe in full.

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Written by
Isabel McDougall
Isabel McDougall
Pensions and Retirement Writer

Isabel specialises in all things pensions. She covers a wide range of topics, including the latest pension news and top tips for retirement planning. She joined HL in 2016 where she first developed her pension knowledge and passion for helping investors save towards their future.

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Article history
Published: 10th January 2024