RPSM05201040 - Member Pages: Contributions and tax relief: Member contributions - methods of obtaining tax reliefs: Relief at source

What is the relief at source method?

Relief at source allows you to deduct a sum equal to basic rate income tax and only pay the net amount to the scheme giving you immediate tax relief. Your scheme claims this tax relief from HMRC on your behalf and adds it to your fund. So although you may already have been taxed on the part of your salary which is to be contributed, the tax is reclaimed.

Example

You want £1000 of your £20,000 relevant UK earnings to go into your registered pension scheme each year.

The basic rate of income tax is 20%, so you actually only need to pay £800.00. This payment can come from your earnings, savings or other sources of funds ( i.e. 1000 less 20% =200).

The pension scheme will then claim the £200 tax relief back from HM Revenue and Customs, so the full amount of £1000 is credited to your scheme. This applies to whether you are a basic rate taxpayer, a higher rate taxpayer or a non-taxpayer