Tax Allowances | Pension Tax | Prudential

Tax information and allowances

We've outlined some information on the current taxation, legislation and HM Revenue and Customs (HMRC) practice which may affect you if you're saving, investing, or have a pension plan. Tax rules can change and the impact of taxation (and any tax relief) depends on your personal circumstances.

Pensions and tax

Paying into a pension plan attracts tax relief but there is a limit on how much you pay in before you face a tax charge known as the Annual Allowance tax charge. When you’re ready to take you pension benefits, there are limits on the amount of tax-free lump sums that can be taken across all your pension arrangements. These are known as the Lump Sum Allowance and Lump Sum and Death Benefit Allowance. You may also have to pay tax when you start taking an income from your pension. 

More information on the allowances can be found below. 

There was a limit to the total amount of pension benefits that could be drawn before you incur a tax charge. 

This limit was known as the standard Lifetime Allowance (LTA) and applied to the total of all of your pension benefits including any existing entitlement you have to defined benefit schemes, but excluding the State Pension.

In the tax years leading up to the 6 April 2024, the standard LTA was £1,073,100.

In certain circumstances individuals were able to apply for a higher protected LTA.

This Lifetime Allowance has now been replaced by: The Lump Sum Allowance (LSA) and The Lump Sum and Death Benefit Allowance (LSDBA).

You can also get more information on the Lump Sum Allowance, Lump Sum and Death Benefit Allowance, Pension protections/enhancements, Annual Allowance, Money Purchase Annual Allowance and Tapered Annual Allowance by visiting gov.uk/tax-on-your-private-pension.

 

Personal Tax

You’ll pay tax on income you receive over a certain amount, depending on the tax bands in place. The current tax rate you pay in each band if you have a standard Personal Allowance is:

Band

Taxable income

Tax rate

Personal Allowance*†

Up to £12,570

0%

Basic rate

£12,571 to £50,270

20%

Higher rate

£50,271 to £125,140

40%

Additional rate

over £125,140

45%

*Your Personal Allowance starts to reduce once your income reaches £100,000 and is lost when income exceeds £125,140.

†The Personal Allowance will be higher if you claim Blind Person’s Allowance. 

Allowances

Everyone has a Personal Allowance which is £12,570. This is the amount of income you can earn before you pay tax. This will be higher if you claim Blind Person’s Allowance or smaller if your income is over £100,000.

For more details on, go to gov.uk/income-tax-rates

Savings, Investments and tax

Personal savings allowance


Your Personal Savings Allowance is the total amount of interest you can earn each year across all of your bank accounts (except ISAs) without paying tax. If you're a basic rate tax payer you can earn up to £1,000 in interest without paying tax on it. Higher rate tax payers can earn up to £500 in interest without paying tax on it. Additional rate tax payers don't get a personal savings allowance. 

Starting rate for savings

You could earn up to £5,000 of savings interest and not have to pay tax on it. This is your starting rate for savings interest, however the more you earn from other income your starting rate for savings is reduced. 

For more details on the personal savings allowance, go to gov.uk/government/publications/personal-savings-allowance-factsheet/personal-savings-allowance

Before you make a decision, you might want to speak to a financial adviser. They can help you understand the tax rules and how they’ll affect you or visit HMRC or MoneyHelper for more information.

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