Question 7
How much tax relief do I get on my pension contributions?
The pension regime is currently going through significant changes which will be effective in 2011/2012. For 2010/11 the rules and tax efficiency are outlined below:-
| Pension | |
|---|---|
| Income tax relief for initial investment? | Yes at up to 40% |
| CGT deferred on investment? | No |
| Tax exemption for income arising on investment? | Yes + |
| Capital gains tax exemption? | Yes |
| Tax relief on interest paid on loan to acquire investment? | No |
| Maximum Yearly investment? | 100% of gross UK earnings limited at £255,000 + |
| Investment easily cashed in? | No |
| Can you lose money? | Yes |
| Lifetime Investment? | £1.8 Million |
+ Transitional Rules
If your income is greater than £130,000, from April 2009 a “special annual allowance” was introduced. It will affect you of all of the following apply:-
- Your total pension savings are greater than £20,000 (including employers)
- You change the amount you normally save on our after 22nd April 2009.
- Your income is £130,000 or more in the current or previous two tax years.
The effect of the special annual allowance will be to restrict the amount of contributions you can receive relief on.
The SPA is calculated at £20,000 less your normal pension savings.
