With a personal pension, you pay a regular amount, usually every month, or a lump sum to the pension provider who will invest it on your behalf. The fund is usually run by financial organisations such as building societies, banks, insurance companies, and unit trusts.
The final value of your pension fund will depend on how much you have contributed and how well the fund's investments have performed. The companies that run these pensions charge you for starting up and running your pension. Charges are normally deducted from your fund.
Contribution levels and tax relief.
You can save as much as you like into any number and type of pensions. Up to age 75, you get tax relief on contributions of up to 100 per cent of your earnings each year, subject to an upper 'annual allowance' £225,000 for the 2007-2008 tax year. Savings above the annual allowance will be subject to a tax charge.
Pension rules from April 2006
Drawing your personal pension.
You can take up to 25 per cent of the value of your total pension savings from all sources as a tax-free lump sum when you retire, up to a maximum of 25 per cent of the lifetime allowance. The lifetime allowance for the tax year 2007-2008 is £1.6 million, gradually rising to £1.8 million by 2010-2011.
You then have two broad options:
1. Use the rest of the fund you have built up to buy an annuity (a regular income payable for life) from a life insurance company; this does not have to be the same company that you have your pension plan with.
2. Take an income (taxed at your normal Income Tax rate) from the remainder of your fund while it continues to be invested – as an 'unsecured pension' up to age 75 or an 'alternatively secured pension' once you reach age 75
If your total pensions savings exceed the lifetime allowance you have two choices:
1. If you take the excess as a taxed lump sum, the excess amount is taxed at 55 per cent.
2. If you take the excess as income, the excess amount is taxed at 25 per cent; income taken from your pension pot will then be taxed at your usual Income Tax rate
If your total pension savings from all sources was £15,000 or less (one per cent of the lifetime allowance) you may be able to take the whole amount as a cash lump sum, with 25 per cent tax-free. The limit will gradually rise each year to £18,000 by the 2010-2011 tax year.
Tax Relief In Summary.
For each pound you contribute to your scheme, the pension provider claims tax back from the government at the basic rate of 22 per cent. In practice, this means that for every £78 you pay into your pension, you end up with £100 in your pension pot.
If you're on the higher tax rate of 40 per cent, you'll still get 40 per cent tax relief for any money you put into your pension. But the way that the money is given back to you is different:
The first 22 per cent is claimed back from HMRC by your pension scheme in the same way as for a lower rate taxpayer
it's then up to you to claim back the other 18 per cent when you fill in your annual tax return, or, for example, by claiming by letter to your Tax Office.
Hope This Helps.
2007-12-17 20:55:44
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answer #1
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answered by shaun147 2
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Short answer = full relief.
On Contributions :-
22% this year (20% next) is reclaimed automatically by the Pension providers (max.contribution £2,088 if you are not paying any tax, otherwise max. = you entire taxed income (or about £225,000 if that is less))
You reclaim Higher Rate Tax via your Personal Assessment.
When you Pension is paid it counts as normal (Taxable) income (except the 25% Tax Free lump sum you can take when your retire)
2007-12-18 00:02:33
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answer #2
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answered by Steve B 7
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