Pension tax relief and personal allowance cofused

emjayay

Hi, can I ask please...

Do you get tax relief on your total pension contribution right up to your total earnings?

I know you can pay in up to your relevant earnings (max £50k) e.g. if you are employed and earn £20,000, then you can pay in £20,000 to pension p.a..

However, does that mean you can get 20% tax relief on the whole £20,000 even though your £7475 personal allowance is tax free? i.e. I am paying in £16,000 net and getting 20% tax releif i.e. £4,000 in the pension.

However, I am only paying tax on £12,525 (£20,000-£7475) which is £2,505 and getting an extra £1,495 (£4,000-£2,505) in tax back than I have actually paid.

Just seems strange, am I missing something....?

dunstonh

Do you get tax relief on your total pension contribution right up to your total earnings?

yes with some caveats.

I know you can pay in up to your relevant earnings (max £50k) e.g. if you are employed and earn £20,000, then you can pay in £20,000 to pension p.a..

You can pay more than £50,000. Either using carry forward or not getting tax relief above £50,000. There are some cases where it can be worth going above £50k and not getting tax relief but they are rare.

However, does that mean you can get 20% tax relief on the whole £20,000 even though your £7475 personal allowance is tax free? i.e. I am paying in £16,000 net and getting 20% tax releif i.e. £4,000 in the pension.

It is your gross amount that matters. As you are not a higher rate taxpayer then any contribution up to your gross income will be subject to basic rate tax relief