A current non-earner can pay up to £2,880 into a pension and get a top-up of £720 from the tax man. Can you please tell me how that works, please?

29 March 2022

Question by David

In a recent blog, Holly suggested "Can you pay into a spouse’s pension? A current non-earner can pay up to £2,880 into a pension and get a top-up of £720 from the tax man."
Can you tell me how that works, please?


Answered by

Hi David

A good question and topical for Tax Year End.

If you are employed you can contribute into a pension and receive tax relief. There is an maximum contribution called an Annual Allowance, which is 100% of your earning up to a maximum of £40,000. This can be reduced if you earn over a certain amount, you can also claim previous years allowance.

A feature of any pension is the tax relief you get on contributions, if this is made through work it is likely this is taken from your salary before tax is paid. If you contribute through a Personal Pension you will get a tax relief at source. This is at the rate of basic rate tax of 20%.

So if you add £80 to a pension you would receive £100. Therefore you have received the 20% basic rate of tax back from the original £100.

Everyone has the right to pay up to £3,600 per tax year into a pension, even if they don't receive an income.

So if you have a spouse who doesn't earn any income, they contribute the maximum £3,600 in a tax year and still receive tax relief.

20% of £3600 = £720

£3600 - £720 = £2880

Therefore contribute of £2880 to the pension and receive tax relief of £720. This will be done by the pension provider on your behalf.

There is a comprehensive list of providers on Boring Money, these will all provide this service.

https://www.boringmoney.co.uk/pensions/pensions/

You still have time before 5th April to do this years allowance.

Hope this helps

Christian