Pensions tax relief - 2009/10 and 2010/11

There is time (just) to make a pension contribution before the end of the current tax year (5.4.10), then a whole year until the rules change again from April 2011. You CAN make a contribution, and many people WILL – the question is, SHOULD YOU?

There are limits (see below) on the amount which will score for tax relief – so why would you invest?

• to obtain 60%* tax relief - bring your taxable income below £100, 000 and keep your personal allowances (a marginal one, this, but for 2010/11 allowances will be scaled back by £1 for every £2 income exceeds £100,000 which gives an effective tax relief of 60% on £12,950 invested)

• to obtain 50%* tax relief – premiums paid in 2010/11 tax year will score for up to 50% relief

• to obtain 40%* tax relief – premiums paid in 2009/10 tax year will score for up to 40% relief

• to obtain 35%* tax relief – the anti-forestalling rules applying for 2009/10 and 2010/11 mean that your maximum relief is available on up to £30,000 of “irregular” premiums – pay £60,000 in 2010/11 though, and half will be relieved at up to 50%, half at 20%, giving a net rate of relief of 35% - better than the maximum of 20% we expect to apply for 2011/12

• to obtain 30%* tax relief – as above – pay £60,000 in 2009/10, and half will be relieved at 40%, half at 20%, giving a net rate of relief of 30% - better than the maximum of 20% we expect to apply for 2011/12)

• to obtain 20%* tax relief (even a basic rate taxpayer gets basic rate relief, usually by paying a premium “net” so £800 paid = £1,000 invested)

*These are the maximum rates of tax relief obtainable – they might not be applicable to your own situation


Those with incomes not exceeding £130,000 in 2009/10 or 2010/11 and the preceding three years can invest up to the amount of their earnings and qualify for tax relief at their marginal tax rate(s).

Those with incomes over £130,000 will qualify for tax relief at their marginal tax rate(s) on their regular pension savings but irregular savings will only qualify for tax relief at marginal tax rate(s) on a maximum of £30,000 – much lower in some cases – with only 20% relief on the balance. Talk to us if you are in any doubt about the maximum you could pay

The purpose of this note is not to give you investment advice – there are pros and cons to tax-advantaged pension savings (pension policies, SIPPS, etc) which are beyond it’s scope – and priorities change from person to person, but perhaps you ought to think about making the most of the available relief while we are still in the transitional period, with some higher rate tax relief available.

The rules, and in particular the anti-forestalling rules, are complex, so talk to your usual Buzzacott contact and your pension adviser before you commit to investing.