If you are thinking of making pension contributions this tax year, the amount of tax relief available to you will depend on three factors:
Your annual contribution allowance;
The amount of unused contribution allowance you have from the previous three tax years; and Your pensionable income in the current tax year.
The annual contribution allowance
In general, the total allowable contributions are limited to £40,000 per annum. However, for higher earners, the allowance is reduced or tapered by up to £30,000. Since 6 April 2016, if your taxable income is more than £150,000 and your ‘threshold income’ (taxable income less gross pension contributions) exceeds £110,000, then the allowance is reduced by £1 for every £2 in excess of the threshold. The maximum reduction is £30,000, resulting in an annual contribution allowance of £10,000.
Carry-forward allowances
If you are a high earner with a tapered annual allowance for 2016/17 and/or 2017/18, any unused allowances from the previous three tax years can be carried forward at the full annual allowance level, plus anything unused from the tapered allowance. Unused allowances must be applied in strict order, with the current tax year allowance (2017/18), and then any available allowance from the oldest of the previous three tax years first i.e. 2014/15, then 2015/16, and lastly 2016/17.
Pensionable income
It is possible to obtain tax relief on personal contributions up to the level of your gross pensionable income for the tax year in which a contribution is made. This is essentially earned income which is taxable.
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