Pension Contributions & Tax Relief
On this page
A Practical Guide from Karia Accountants →
Why pensions are such a powerful tax planning tool →
How pension tax relief works (in simple terms) →
Annual allowance – how much can you contribute? →
Relevant earnings and contribution limits →
Pension contributions for company directors →
Pension contributions for landlords →
Tax-free growth and withdrawals →
Common pension mistakes we see →
How Karia Accountants can help →
Request a call back
Place your confidence in Karia Accountants. Submit your details for a free telephone consultation.
01332 492 101
A Practical Guide from Karia Accountants
Making pension contributions is one of the most effective and HMRC-approved ways to reduce tax, build long-term wealth, and plan for retirement. Whether you are employed, self-employed, a company director, or a landlord, understanding how pension tax relief works can make a substantial difference to your overall financial position.
​
At Karia Accountants, we regularly help clients structure pension contributions correctly to ensure they receive the maximum tax relief available, while avoiding costly mistakes.
Why pensions are such a powerful tax planning tool
Pensions offer a unique combination of benefits that few other investments can match:
-
Income tax relief on contributions
-
Tax-free investment growth within the pension
-
Employer contributions deductible for Corporation Tax
-
Potential inheritance tax advantages
-
Flexibility over when and how benefits are taken
When used properly, pensions are not just a retirement product — they are a core tax planning strategy.
How pension tax relief works (in simple terms)
The tax relief you receive depends on how the contribution is made and your tax status.
Personal pension contributions (including SIPPs)
When you contribute personally:
-
You receive basic rate tax relief (20%) automatically
-
Higher and additional rate taxpayers can claim further relief via Self Assessment
Example If you pay £8,000 into a pension:
-
HMRC adds £2,000
-
Total pension contribution = £10,000
If you are a higher-rate taxpayer, you can reclaim an additional 20% through your tax return.
Employer pension contributions (limited companies)
For directors and employees:
-
The company pays directly into the pension
-
Contributions are usually fully deductible for Corporation Tax
-
No income tax or National Insurance is paid by the individual
This is often one of the most tax-efficient ways for company directors to extract profits.
Karia Accountants frequently recommends employer pension contributions as an alternative to dividends where appropriate.
Annual allowance – how much can you contribute?
Standard annual allowance
Most individuals can contribute up to £60,000 per tax year (gross) into pensions.
This includes:
-
Personal contributions
-
Employer contributions
-
Contributions paid by third parties
Carry forward rules
If you have not used your full allowance in previous years, you may be able to carry forward unused allowance from the last three tax years, provided:
-
You were a member of a registered pension scheme
-
You have sufficient relevant earnings (for personal contributions)
This can allow large one-off pension contributions, often used after a strong trading year or business sale.
Tapered annual allowance (high earners)
High earners may have their annual allowance reduced (tapered) if:
-
Adjusted income exceeds HMRC thresholds
This is a complex area and commonly misunderstood. Incorrect contributions can trigger unexpected tax charges.
Karia Accountants reviews taper exposure before advising large contributions.
Relevant earnings and contribution limits
Standard annual allowance
Most individuals can contribute up to £60,000 per tax year (gross) into pensions.
This includes:
-
Personal contributions
-
Employer contributions
-
Contributions paid by third parties
Carry forward rules
If you have not used your full allowance in previous years, you may be able to carry forward unused allowance from the last three tax years, provided:
-
You were a member of a registered pension scheme
-
You have sufficient relevant earnings (for personal contributions)
This can allow large one-off pension contributions, often used after a strong trading year or business sale.
Tapered annual allowance (high earners)
High earners may have their annual allowance reduced (tapered) if:
-
Adjusted income exceeds HMRC thresholds
This is a complex area and commonly misunderstood. Incorrect contributions can trigger unexpected tax charges.
Karia Accountants reviews taper exposure before advising large contributions.
Pension contributions for company directors
For many directors, employer pension contributions are far more efficient than personal contributions.
Key advantages:
-
No need for relevant earnings
-
No income tax or NIC
-
Corporation Tax relief for the company
-
Contributions can be higher than personal limits allow
This is particularly effective for:
-
Owner-managed companies
-
Directors with low salaries and high dividends
-
Profitable companies retaining cash
Karia Accountants regularly integrates pension planning into director remuneration strategies.
Pension contributions for landlords
Landlords often assume they cannot use pensions effectively — this is not always true.
-
Rental income does not count as relevant earnings
-
However, landlords with a limited company, employment income, or a trading business may still benefit
-
Employer pension contributions via a company can still be very effective
Pensions can also form part of long-term succession and estate planning for property investors.
Tax-free growth and withdrawals
Growth inside a pension
-
No Capital Gains Tax
-
No income tax on investment returns
-
Compounding over long periods can be substantial
Taking benefits
At retirement:
-
Up to 25% can usually be taken tax-free
-
The remaining balance is taxed as income when withdrawn
Planning the timing and amount of withdrawals is essential to avoid pushing yourself into higher tax bands.
Common pension mistakes we see
-
Over-contributing and triggering annual allowance charges
-
Ignoring carry forward opportunities
-
Claiming incorrect tax relief on dividends or rental income
-
Failing to use employer contributions
-
Missing higher-rate tax relief claims
-
Not considering tapered allowance exposure
These errors can easily cost thousands of pounds.
How Karia Accountants can help
Karia Accountants provides clear, practical pension planning support, including:
✔ Pension contribution planning
✔ Director remuneration strategies
✔ Carry forward calculations
✔ Tapered allowance reviews
✔ Self Assessment tax relief claims
✔ Integration with wider tax planning
✔ Coordination with financial advisers where required
We focus on ensuring pension contributions are tax-efficient, compliant, and aligned with your wider financial goals.
Is pension planning right for you?
Pensions are particularly effective if you:
-
Pay higher-rate or additional-rate tax
-
Run a limited company
-
Have surplus profits or cash
-
Want long-term, tax-efficient growth
They may be less suitable if you:
-
Need immediate access to funds
-
Have already triggered pension access restrictions
Are close to retirement without sufficient planning
Speak to Karia Accountants
Pension contributions are one of the few remaining areas of generous tax relief, but the rules are complex and mistakes are expensive.
​
Karia Accountants can help you get it right — and make your money work harder for the future.
