Retirement savings are necessary for retirement and are often put in place years before a person leaves the workforce. But besides the ultimate goal of saving, there are also other “benefits” that a person can gain along the way. One of them is tax relief, which is often seen as the backbone of any pension plan.
People will be able to get tax relief on private pension contributions worth up to 100 percent of annual income or £ 40,000 a year – whichever is less.
Every time a person contributes to their pension, the government will also do so through tax breaks.
Everyone is entitled to at least a base 20 percent government tax relief rate, but it could be higher depending on someone’s tax bracket.
However, many people may not use the full amount of the allowance when contributing to their pension as they might every year.
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Those who exceed the annual allowance will receive a declaration from their pension institution.
Either the provident institution or the person concerned will have to pay the tax burden, and on time, or risk interest for any late payment.
Individuals will need to complete the “Tax Fees on Pension Savings” section of a self-assessment tax return to notify HMRC of the tax.
However, savers can still claim tax relief for pension contributions through their self-assessment tax return, even if they are greater than the annual allowance.
The HMRC has said it will not force a person to exceed their annual allowance in a tax year if they have died or have retired and taken all of their pension funds due serious illness.