During a person’s working life, it may be that they make contributions into a private pension scheme. The contributions to some of these schemes may be tax-free, although this is only up to a certain limit. The relief applies to a variety of private pension schemes, such as workplace pensions, personal and stakeholder pensions, or overseas pension schemes that qualify for UK tax relief. However, it’s worth bearing in mind that there are limits to the amount of contributions which can be made tax-free.
In each tax year, this stands at either 100 per cent of earnings, or the annual allowance of £40,000 - whichever is lower.
There is also a lifetime allowance on tax-free pension contributions.
This stands at £1,055,000.
The lifetime allowance means that a person may per required to pay tax if their pension pots are worth more than this threshold.
It is possible to ask one’s pension provider about how much of a person’s lifetime allowance has been used.
Gov.uk explain that should a person be in more than one pension scheme, they must add up what they’ve used in all pension schemes they belong to.
Pension tax relief: What is the lifetime allowance on pension contributions? (Image: GETTY)
The lifetime allowance for tax relief on pension