Croner Taxwise tax adviser Amaira Badat explains the restrictions on pension contributions, including the annual allowance, the lifetime allowance, and the money purchase annual allowance
Question: My client takes most of their funds from the company via dividends. How much can they and/or the company contribute to their pension?
Answer: When an individual contributes to their pension, they must ensure that the amount they contribute is less than 100% of their ‘relevant UK earnings’ for that tax year or £3,600 (£2,880 net). Any personal contributions made above that amount will not get any tax relief. The individual must notify their pension provider if they go above this amount so the pension provider can ensure the correct amount of tax relief is claimed or refunded to HMRC.
A list of ‘relevant UK earnings’ chargeable to income tax is provided in the section entitled ‘Earnings that attract tax relief’ within the HMRC Pensions Tax Manual at PTM044100. This does not include dividends. An example of other income not included is rental income, except so far as it relates to a furnished holiday letting business.
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