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Tax limits
Tax limits

The money you pay into your pension arrangements usually gets tax relief. 

However, there are limits on how much you can save towards your pension before tax will be charged on any excess.

 
 
Annual Allowance = £40,000
The Annual Allowance is the total amount you can pay into all of your pension arrangements each tax year before tax will be charged. Each £1 of annual defined benefit pension built up is treated as £16 for this purpose.
 
You’ll get a statement from your pension provider telling you if you go above the Annual Allowance in that particular arrangement.
 
You can carry forward any unused Annual Allowance for up to three years. 
 
 
Money Purchase Annual Allowance = £4,000
This is the total amount you can pay into any defined contribution pension arrangements each tax year before tax will be charged.
 
The Money Purchase Annual Allowance only comes into effect if you have already taken some of your defined contribution savings as cash or a short-term annuity from a flexi-access drawdown fund, cash from a pension pot (‘uncrystallised funds pension lump sums’) or if you have taken more than the limit from a capped drawdown fund.  

 
Tapered Annual Allowance = between £4,000 and £40,000
Your Annual Allowance will only be tapered if you are a high earner and your ‘adjusted income’ (your taxable income plus your Pension Input Amount) is £240,000 or more and your taxable income is over £200,000. 
 
For every £2 of adjusted income over £240,000, your Annual Allowance reduces by £1 (down to a possible minimum of £4,000).

If your total taxable income is over £200,000, you should check if the Tapered Annual Allowance applies to you. 
 
  
Lifetime Allowance = £1,073,100 (from 6 April 2020)
The Lifetime Allowance is the total amount you can pay into your pension arrangements over your lifetime before tax will be charged (unless you have previously obtained or in the future you apply for a specific protection). Each £1 of annual defined benefit pension built up is treated as £20 for this purpose. You can apply to protect your Lifetime Allowance from this reduction and learn more by visiting www.gov.uk/tax-on-your-private-pension/lifetime-allowance.   
 
    
It is your responsibility to monitor how much Annual and Lifetime Allowance you have used and report any excess to Her Majesty’s Revenue & Customs (HMRC) using a Self assessment tax return form.

Please note that Annual and Lifetime Allowance limits are subject to change. Visit www.gov.uk/tax-on-your-private-pension for more information.