Tax relief is one of the biggest benefits of saving into a pension. Here's how it works.
What is tax relief?
When you contribute to a pension, the government adds extra money through tax relief. This is money you would have paid in tax, redirected to your pension instead.
How much tax relief do you get?
The amount depends on your income tax rate:
Basic rate taxpayers (20%): Get 20% tax relief automatically
Higher rate taxpayers (40%): Get 20% automatically, plus can claim another 20% through self-assessment
Additional rate taxpayers (45%): Get 20% automatically, plus can claim another 25% through self-assessment
If you pay Scottish income tax, the bands and rates are different, so the amount you can claim back may differ too.
There are limits. You get tax relief on contributions up to 100% of your UK earnings each tax year, or £3,600 (including tax relief) if that's higher. Your total contributions also need to stay within your annual allowance, and a lower allowance applies if you've already started taking money from a pension.
How it works at Chest
When you make a contribution to Chest, here's what happens:
You contribute £80 from your bank account
Chest claims £20 in tax relief from HMRC on your behalf
£100 is invested in your pension
So for every £80 you put in, you get £100 in your pension. That's 25% on top of what you paid in.
When is tax relief added?
Basic rate tax relief usually arrives in your pension within 6-8 weeks of your contribution, depending on when in the month you paid in.
Higher and additional rate relief
If you pay 40% or 45% tax, the extra relief isn't added to your pension. Instead, you claim it through your self-assessment tax return and it reduces your tax bill or increases your refund. The amount you can claim is limited to the income you actually paid tax on at that rate.
Tax relief on cashback
Cashback is paid at Chest's discretion and isn't guaranteed. When cashback is paid into your pension, it's treated as a personal contribution, so basic rate tax relief is claimed on it in the same way as any other contribution you make, subject to the limits above. Higher and additional rate taxpayers may be able to claim further relief through self-assessment.
Non-taxpayers
Even if you don't pay income tax, you can still get 20% tax relief on contributions up to £2,880 a year. Pay in £2,880 and £3,600 goes into your pension.
Still need help?
If you have questions about tax relief, contact us at support@joinchest.com. For specific tax advice, we recommend speaking to a tax adviser.
Tax treatment is subject to personal circumstances and may change in the future.