RPSM05101120 – Technical Pages: Contributions and tax relief: Member contributions: Entitlement to tax relief: Annual Limit

The annual limit on tax relief

The maximum amount of contributions on which a member can claim relief in any tax year is the greater of

• the ‘basic amount’ – currently £3600, and
• the amount of the individual’s relevant UK earnings that are chargeable to income tax for the tax year.

Where a member’s relevant UK earnings chargeable to tax are less than £3,600, tax relief on the amount of any contribution over the level of their earnings up to the £3,600 limit can only be given if the contribution is paid to a pension scheme that operates the relief at source (RAS) system.

RPSM05101300 gives more information on the methods of granting tax relief.

Unused tax relief cannot be carried backwards or forwards to other tax years.

Contributions that don’t count towards the annual limit

Where an employer recovers from an employee minimum contributions paid by that employer under section 8(3) of the Pension Schemes Act 1993, or section 4(3) of the Pension Schemes (Northern Ireland) Act 1993 that amount does not count towards the limit on tax relief. Relief is always given on these amounts regardless of the annual limit for relief.

This means for example that if in any tax year, a member pays contributions of

• 100% of their relevant UK earnings for that year, and in addition
• their employer recovers an amount from the member relating to the member’s share of minimum payments made by their employer into a contracted-out defined benefit scheme,

the member will be able to claim relief in respect of the contributions paid and on the minimum contributions recovered by the employer even though the total amount exceeds the member’s relevant UK earnings for the tax year.