Tax on your private pension contributions

Annual allowance

Your annual allowance is the most you can save in your pension pots in a tax year (6 April to 5 April) before you have to pay tax.

You’ll only pay tax if you go above the annual allowance. This is £40,000 this tax year.

What counts towards the annual allowance

Your annual allowance applies to all of your private pensions, if you have more than one. This includes:

If you use all of your annual allowance for the current tax year

You might be able to carry over any annual allowance you did not use from the previous 3 tax years.

When your annual allowance is lower than £40,000

Your annual allowance might be lower if you have:

  • flexibly accessed your pension pot
  • a high income

If you flexibly access your pension

Your annual allowance might be lower if you flexibly access your pension. For example, this could include taking:

The lower allowance is called the ‘money purchase annual allowance’.

If you have a high income

You’ll have a reduced (‘tapered’) annual allowance if both:

  • your ‘threshold income’ is over £110,000
  • your ‘adjusted income’ is over £150,000

Work out your reduced annual allowance.

Pay tax if you go above the annual allowance

You’ll get a statement from your pension provider telling you if you go above the annual allowance.

If you’re in more than one pension scheme, ask each pension provider for statements. This will help you work out how much you’ve gone above the allowance.

Use this information to fill in a Self Assessment tax return. Fill in the ‘Pension savings tax charges’ section - you’ll need form SA101 if you’re using paper forms.

HMRC uses your Self Assessment tax return to work out how much Income Tax you pay.

You can still claim tax relief for pension contributions on your Self Assessment tax return if you’re above the annual allowance.

HMRC does not tax anyone for going over their annual allowance in a tax year if they:

  • retired and took all their pension pots because of serious ill health
  • died

If the tax is more than £2,000

You can ask your pension provider to pay HMRC out of your pension pot if both of the following apply:

  • you’ve gone over the full annual allowance of £40,000 in their scheme
  • the tax is more than £2,000

In most cases they must pay all or part of the tax.

You must tell your pension provider by 31 July in the year after the end of the tax year. For example, if the tax is for the 2017 to 2018 tax year you must tell them by 31 July 2019. You’ll still need to fill in a Self Assessment tax return.

If you’re paying tax because you went over the lower allowance of £4,000, your provider can only pay it from your pot if you would have paid more than £2,000 tax based on the full annual allowance of £40,000 (plus unused allowance from the previous 3 tax years).

If the tax is less than £2,000

Your pension provider can choose to pay HMRC out of your pension pot if the tax is less than £2,000. You need to pay the tax if your pension provider does not offer this service.

You must make sure the tax is paid by 31 January in the following tax year. For example, if the tax is for the 2018 to 2019 tax year the deadline for paying is 31 January 2020.

If either you or your pension provider misses the deadline, or you do not submit your Self Assessment tax return on time, you might have to pay a penalty. You’ll be charged interest on late payments.