Pension savings tax charges 01 - Pension savings tax charges and taxable lump sums from overseas pension schemes

If your pension scheme is a UK-registered pension scheme, the scheme administrator should provide you with the necessary information to enable you to work out if any pension savings tax charges apply.

Understanding the annual allowance for pension schemes

You can save as much as you like towards your pension each year, but there's a limit on the amount that will get tax relief. The maximum amount of pension savings that can benefit from tax relief each year is called the annual allowance. The annual allowance applies to every person who is a member of:

• a registered pension scheme
• an overseas pension scheme - as long as either you or your employer qualify for UK tax relief on those pension savings

Tax on your private pension contributions

Annual allowance limit

The annual allowance limit for 6 April 2020 to 5 April 2021 is £40,000. If you save more than this you may have to pay a tax charge on the excess.

If you save more than this amount you may have to pay a tax charge on the excess.

If you're already taking a pension using 'flexible drawdown' the amount of your annual allowance will be reduced.

Carrying forward unused annual allowance

If your total pension savings for the tax year are more than the annual allowance you can carry forward any unused annual allowance from the previous 3 years to the current tax year. You only have to pay tax on any pension savings in excess of the total of:

• the annual allowance for the tax year
• any unused annual allowance you carry forward from the previous 3 years

You can only carry forward unused annual allowance if during the tax year you were in either:

• a registered pension scheme
• an overseas pension scheme and either you or your employer qualified for UK tax relief on pension savings in that scheme

There's a strict order in which you use up your annual allowance. First you use the annual allowance from the current tax year followed by any unused annual allowance from the previous 3 tax years, using the earliest tax year first.

There are special rules when carrying forward annual allowance for tax years 2008 to 2009 until 2010 to 2011. You should calculate the amount of available annual allowance using an annual allowance rate and using the current method of valuing your pension savings amount.