Will I pay an annual allowance charge if the amount paid into my pension in a year is less than £12,570?

26 October 2021

Question by Ajay

On the Moneyhelper website of the Govt's Money & Pension Service it says:
"If you exceed the annual allowance in a particular tax year, you won’t get tax relief on any contributions you paid that exceed the limit in that tax year, and you will be faced with an annual allowance charge.

The amount you've exceeded the annual allowance by will be added to the rest of your taxable income for the tax year and be subject to Income Tax at the rate(s) that apply to you."

My question is, if your earnings are less than the personal income tax allowance of £12,570 does that mean that you will not actually pay an annual allowance charge if the amount paid into a pension in a year is less than £12,570?

Answered by Boring Money

Hi Ajay,

The annual allowance is the lower of your "relevant" UK earnings or £40,000. For example, if your relevant earnings are £10,000 that means you can pay up to £10,000 into your pension and there would be no annual allowance charge.

It is important to remember that not all earnings are relevant earnings. So for example, rental income or dividends are not relevant earnings. So you need to check first that your earnings count as relevant earnings.

Luke James

Independent Financial Adviser

Answered by

Boring Money