Tax-relief on your contributions

Pension contributions are one of the most efficient investments you can make, with valuable tax savings being added to anything that you pay and immediately boosting the amount paid into your plan.

Tax-relief on personal contributions

Personal contributions to a Personal Pension or SIPP are always paid net of basic rate tax. Under the Digital Group SIPP, any personal contributions are deducted via payroll under a “Relief at Source” arrangement.

This means that they are taken net of basic rate tax, from your net pay, after tax and National Insurance have been deducted. The pension provider reclaims the basic rate tax for you, and the net contribution is topped up automatically.

For example, a £100 personal contribution is deducted as a net amount of £80.00, from net pay. The pension provider claims back the £20.00 tax for you and tops the total amount up to £100.

If you are a non-taxpayer, you will also benefit from this arrangement, as any contributions will be topped up automatically in the same way.

 

Higher rate tax relief

Everyone receives basic rate tax relief automatically. However, if you pay higher-rate tax, you are due an additional 20% or 25% relief, depending on your personal circumstances. This is normally obtained by submitting a self-assessment tax-return.

In order to pay the additional tax-relief, HMRC will either:

  • reduce any other tax that you may owe
  • pay a tax-rebate
  • adjust your tax-code

If you don’t normally submit a tax-return, you should contact HMRC directly to claim any higher-rate relief.