Tax on your pension contributions

Usually, you don’t pay tax on contributions you make to your pension. However, the Government sets some limits on the amount of money you can save into your pension(s) without paying tax. It is your responsibility to check if you’re exceeding these allowances and make sure you pay any charges.

We have summarised the allowances below but you can find more on the Government website.

The Annual Allowance

The Annual Allowance (AA) is the maximum amount of money you can pay in to all your pension arrangements in one tax year before incurring a tax charge.

In the 2021/22 and the 2022/23 tax years, the Government set the standard AA at £40,000. Your AA might be lower if you have:

For more information, visit the Government website.

If you exceed the AA, then you may have to pay tax on any contributions made over this limit. If you have not used all your AA in the preceding three tax years, then you can carry forward any unused allowance into the current tax year to increase your AA for the current year.

Tapered Annual Allowance

For the 2022/23 tax year, the Tapered Annual Allowance (Tapered AA) affects anyone earning over £200,000 a year (before tax, excluding any deductions like pension contributions) or £240,000 a year (before tax, including deductions).

This allowance sees your Annual Allowance reduced by £1 for every £2 you earn over the limit. The minimum that your Annual Allowance can be tapered to is £4,000 a year.

For more information, visit the Government website.

Lifetime Allowance

The Lifetime Allowance (LTA) is the total value of your pension arrangements, not including the State Pension, which you can build up in your lifetime without paying an additional tax charge.

For the 2022/23 tax year, the LTA is £1,073,100.

If you exceed the LTA, you would incur a tax charge on any money you withdraw over this limit.


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