There’s no limit to the amount of money you can add to your pension pot each tax year. But there is a cap on the amount of money you can save that is tax-free. The cap applies to a person rather than to an individual pension; so if you’re contributing to more than one pension fund, the tax-free limit applies to the total sum of money over all pensions.
Contributions to pensions attract tax relief. However, the maximum that can be contributed that will qualify for tax relief is the greater of £3,600 gross, or 100% of your earnings p.a. There is also an annual allowance which is currently £40,000. If contributions exceed the annual allowance there will be a tax charge payable. This figure includes contributions from:
1. The pension holder’s net earnings.
2. Tax relief from the Government.
3. Employer contributions.
If the maximum limit is exceeded, tax is due on the excessive portion of contributions. For example, if a sum of £50,000 was paid into a pension fund over the course of one year, tax would be payable on £10,000.