Tax implications in relation to pensions
Produced in partnership with David Salter, deputy High Court judge and Recorder
Tax implications in relation to pensions

The following Family practice note Produced in partnership with David Salter, deputy High Court judge and Recorder provides comprehensive and up to date legal information covering:

  • Tax implications in relation to pensions
  • Tax concessions
  • Tax charges and exceptions
  • Annual allowance and lifetime allowance
  • Marriage and civil partnership
  • Effect of relationship breakdown
  • Offsetting
  • Sharing
  • Attachment

Tax concessions

Individuals and employers are encouraged to save for retirement by tax incentives on pension contributions. The main tax breaks are:

  1. employees do not pay tax and national insurance contributions (NICs) on pension contributions paid by their employer

  2. all individuals receive tax relief (but not NIC relief) on their own pension contributions (subject to the annual allowance and lifetime allowance) up to the age of 75 years—basic rate relief is given at source with relief at the higher rates given as an adjustment to the person’s tax bill, for example, a personal pension contribution of £1,000 gross costs £800 when the payment is made, and a higher-rate taxpayer gets a further £200 of relief through their pay as you earn (PAYE) tax code or by reduction of their tax bill if they are self-employed—an additional rate taxpayer receives an extra £250 of tax relief, but from 2016/17 taxpayers with income over £150,000 (£240,000 from 2020/21) may incur an annual allowance tax charge where contributions exceed their reduced annual allowance

  3. pension funds accumulate virtually free of income tax and capital gains tax on the investments held

  4. at retirement (usually after age 55), part of the pension fund can be taken as a lump sum free of tax: broadly 25% of the fund or the lifetime allowance if lower, but more in some cases, see main

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