The pensions tax regime

The pensions tax regime—overview

Pension savings under registered pension schemes are subject to favourable tax treatment, thus incentivising individuals to save for their retirement and be less reliant on the state pension system. However, the extent to which pension savings attract tax relief is subject to limits imposed by Her Majesty’s Revenue & Customs (HMRC).

Tax considerations are relevant to a UK registered pension scheme when:

1. •

   funds are paid into the scheme (in the form of member and employer contributions)

2. •

   funds/assets, including returns made from investing such funds/assets, are held in the scheme, and

3. •

   monies are paid out of the scheme (in the form of pension benefits)

The current pensions tax relief system can broadly be described as 'Exempt-Exempt-Taxed', whereby the first two above stages are exempt from tax (subject to limits) and the third stage is taxed.

For an introduction to the current pensions tax relief system, see Practice Note: Tax treatment of pensions—an introduction.