The tax relief on SIPP (Self-Invested Personal Pension) contributions is one of the key benefits that make it a tax-efficient way to save for retirement in the UK. Here's how it works:
1. Basic Tax Relief (20%)
When you contribute to a SIPP, the government adds 20% basic rate tax relief on your contributions. The tax relief is automatically claimed by Plum, and it usually appears in your pension account within 2-3 months due to various processes in the background.
The maximum tax relief you can get is up to 100% of your annual salary or £60,000 (whichever is lower).
2. Higher-Rate (40%) and Additional-Rate (45%) Taxpayers
If you are a higher-rate taxpayer (40%) or an additional-rate taxpayer (45%), you can claim additional tax relief on top of the 20% basic rate. This extra relief is not added automatically to your account - you need to claim it through the Self Assessment Tax Return or by contacting HMRC.
3. Non-Earners
If you have no relevant UK earnings or earn less than £3600 per year, you still qualify to have tax relief added to your contribution. The maximum you can deposit in this case is £2,880 a year. Under those circumstances, £720 is claimed from the government and added to your pension. leading to a total of £3,600 per tax year.
Important Considerations:
You only receive tax relief on contributions up to the annual allowance and your earnings.
Higher-rate and additional-rate taxpayers must actively claim the additional relief through a tax return.
Tax relief on SIPP contributions helps significantly boost your pension savings, especially for higher-rate and additional-rate taxpayers, who benefit from greater overall tax efficiency.