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Tax relief on your pension

Tax relief is available when you make payments into a pension scheme, either by:

  1. contributing to an NHS pension directly from your salary. In this case the pension payment is deducted from your gross salary before income tax is deducted, therefore you save tax at your marginal rate on the amount contributed to your pension.
  2. making contributions to a private pension plan (although it should be noted that most doctors will choose to have an NHS pension). If you contribute in this way, you will receive an additional 25 per cent of the value of your contribution from HMRC, subject to certain limits. For example, if you pay £80 into a private pension, HMRC will pay in an additional £20, making the total contribution £100.

If you are a higher rate or additional rate taxpayer, you are currently due additional higher rates or additional rates of tax relief on your pension contributions.

The maximum gross amount an individual can contribute to their pension scheme and on which they can receive tax relief is 100 per cent of ‘net relevant earnings’ but this is capped at the annual allowance. This takes into account contributions made by an employer. Where the available annual allowance is exceeded, an ‘annual allowance tax charge’ will arise. If gross pension savings exceed the annual allowance in a tax year, an individual will be allowed to bring forward any unused annual allowances from the previous three tax years as long as they have been a member of a registered pension scheme for the year in question.

Pensions and annual allowance

The annual allowance was £50,000 in 2012/13 and 2013/14, and £40,000 in 2014/15 and 2015/16, however special transitional rules were in place for 2015/16 whereby an individual could have potentially had an enhanced annual allowance of up to £80,000.

From 6 April 2016, the standard annual allowance remains £40,000, however individuals who have taxable income over £110,000 and taxable income plus pension inputs over £150,000 (adjusted income) will have their pension annual allowance for the tax year reduced. The annual allowance will be reduced by £1 for every £2 of adjusted income over £150,000. Once adjusted income reaches £210,000, the annual allowance will be reduced to a minimum level of £10,000.

UK tax-relieved contributions are subject to an overall limit known as the lifetime allowance. If your total UK tax-relieved contributions exceed the lifetime allowance, you may be subject to a UK tax charge when you receive benefits from your pension plan. The lifetime allowance in the absence of making fixed protection-type elections is £1,030,000 with effect from 6 April 2018.