Pension contributions should be entirely tax free. Under PAYE, the basic rate of tax (20%) on our pension contributions is automatically rebated and added to our pension pots. For higher and additional rate tax payers who pay 40% and 45% tax, however, the additional 20% or 25% must be reclaimed by filing a tax return or writing to HMRC.

This does not apply to salary sacrifice schemes where the full pension contribution is automatically tax free.

The Calculator results for individuals that earn more than £100,000 p.a. may vary slightly as these individuals lose their personal allowance.

Similarly, charitable donations should be 100% tax free. For more information about what constitutes a charitable donation please click here. Usually we tick boxes on online sponsorship forms which allow the charity to reclaim the basic rate of tax on our behalf and add it to our contribution to use for their charitable purposes, much like the 20% basic rate of tax is automatically added to your pension pot. The additional 20% or 25%, however, generally remains unclaimed. This can mount up very quickly.

Examples

In simple terms when an individual pays £80 into their pension plan the Government will pay a 20% tax credit into the plan also. However a 40% taxpayer is entitled to an additional £20 in pension relief. So, a higher rate tax payer who contributes £8,000 net will be entitled to claim an additional £2,000 in pension relief.

Therefore, a 40% higher rate taxpayer who has contributed £8,000 net in pension contributions each year for the last three years, but not claimed their higher rate relief, could now be due a refund of £6,000. Case study taken from Smith & Williamson, read more sw-logo_marsala-grey_rgb-2_grey

If the same individual sponsored 6 people £20 to run 10km and 3 people £50 to run a marathon each year for the last 3 years, they would have contributed £810 to charity and would be entitled to a rebate of £202.50.