On the tenth day of Christmas…a present of income tax relief

Peter Nutini

Peter Nutini

Financial Planner

As you plan your Christmas shopping list, there’s one gift you should consider adding for yourself…income tax relief.

As financial planners, we always make sure Johnston Carmichael Wealth clients are making use of available tax breaks, assuming of course that the investment product is aligned to their objectives and investment risk profile.

With the government potentially looking to raise income tax receipts in order to reduce the budget deficit, clients should review their options before the opportunity disappears.

Make a pension contribution

Generous tax reliefs have been made available by successive governments to those who invest in pensions. These reliefs make pension contributions extremely attractive, especially to higher earners. However, in recent years, tighter restrictions have been introduced on obtaining these reliefs, thus making them more important than ever.

The annual pension allowance that an individual can pay into their pension plan is normally £40,000 however depending on your own personal circumstances it could be more or less. Johnston Carmichael Wealth can assess your individual circumstances and help you with this.

Carry forward of unused allowances from the previous three years might be available to increase the amount of contribution one can make.

If you are under the age of 75 then you can benefit from up to 45% income tax relief on pension contributions. Basic rate income tax relief of 20% is automatically added to an individual’s pension plan when they make a contribution. Higher and additional rate tax payers can claim an additional 20% and 25% income tax relief respectively via their tax return.

The following are examples of the amounts of relief available:

IndividualIndividuals Pension ContributionIncome Tax Relief at SourceTotal Paid into PensionAdditional Income Tax Relief via Tax Return
Children & Non Tax Payers









Basic Rate Taxpayer£5,000£1,250£6,250-
Higher Rate Taxpayer£5,000£1,250£6,250£1,250
Additional Rate Taxpayers£32,000£8,000£40,000£10,000

A couple of interesting points to note:

The maximum contribution and amount of income tax relief that a person can make and receive into a pension plan is subject to individual circumstances
Non-taxpayers can pay no income tax yet claim income tax relief subject to their individual circumstances
An additional rate tax payer making a net pension contribution of £32,000 can claim additional income tax relief of £10,000 via their tax return…meaning that the £32,000 contribution has only cost them £22,000!

And there’s more:

A pension fund grows free of income and capital gains tax
An individual can withdraw a maximum of 25% of their pension fund as a tax free sum
On death, an individual’s pension fund can normally pass to their beneficiary free of inheritance tax should they die before the age of 75. On death post age 75, income tax might be payable by the beneficiaries depending on the how fund is passed to them.

Talk to your adviser

As always, before proceeding with any financial decision, we recommend that professional advice is sought with your financial adviser before taking action.

This article is for information purposes only and should not be construed as an individual recommendation.

All statements concerning the tax treatment of products and their benefits are based upon our understanding of current tax law and HMRC practices both of which are subject to change in the future. Levels and basis of reliefs from taxation are also subject to change and are dependent on your individual circumstances.

Disclaimer: While all possible care is taken in the completion of this blog, no responsibility for loss occasioned by any person acting or refraining from action as a result of the information contained herein can be accepted by this firm.