Personal Pension Plan
Any self-employed or a PAYE employed person can contribute to a personal pension plan. There are several benefits to contributing to a personal pension plan including full tax relief on your contributions, tax-free investment growth and tax free cash on retirement (25% of your fund). You can retire at any time between the ages of 60 and 75, take your tax free lump sum and then invest the remainder of the fund, or cash it in subject to a deduction of taxation.
Increased tax deduction for pension contributions
If you are a self-employed person, a director (a director of a family company or a director who controls more than 5% of the voting rights of company) or an employee who is not in an occupational pension scheme, the percentage of your earnings* which can be set aside each year as pension contributions and be fully tax deductible is set out on the chart below:
You are not guaranteed income tax relief, but you will generally get income tax relief on contributions up to the percentage of net relevant earnings defined and set out in the graph below. To be eligible to claim relief, your income must be taxable under Schedule E or Schedule D (case I or II)
*Earnings are defined as follows.
If you are an employee, your earnings are your salary plus any overtime, bonuses and benefits-in-kind.
If you are self-employed, your earnings are your ‘net relevant earnings’. Net relevant earnings means your income during a tax year, less allowances or losses and also less certain charges and deductions.