Annual allowance. Does it include tax relief or not?

ZiggerZagger

I saw an IFA today about my pension options. I am starting from scratch with no pension at 42 (post divorce) so I thought it worth getting some proper advice on my options.

Because I haven't been a member of a scheme in the past, I have no carry forward allowances so I want to be able to contribute the maximum that I can (while I'm able to).

From my understanding, the annual allowance is £40,000 (as long as I'm earning that) which comprises of my contributions, my employer's contributions and anybody else who contributes on my behalf (no-one). This is how it is defined on the pension site.

The way I read the regulations on the government pension website was that this £40k was BEFORE the tax top up. I.e (theoretical figures) if my employer put in £10k, I could put in £30k out of earnings.

The IFA told me today that the £40k INCLUDES the tax relief. I.e if the employer put in £10k, (and let's assume for simplicity that you only get 20% relief), then the max I could put in was £24k (and then plus the £6k tax relief).

I wanted to see what others understanding was of the annual allowance and tax relief - I.e does the £40k include tax relief or is it just 'pure' contributions as I hadn't realised this till today.

it also appears not to include higher rate tax relief - so you only have to take into account basic rate tax relief not any higher rate amounts.

jamesd

The IFA is correct. The limit is the gross amount that ends up in the pension after 25% for basic rate tax relief is added by the pension firm. You're correct that the higher rate relief isn't included in the calculation.

If it is a salary sacrifice scheme then you'd get the higher rate relief at the time of contribution and it would then be included because what matters is the amount that ends up in the pension scheme.

ZiggerZagger

Thanks. we don't do salary sacrifice at work so I only need to worry about basic rate tax relief for now!