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Tax Relief

Tax relief - the power behind pensions saving

Pensions are one of the most tax-efficient ways to save for your retirement. There are three ways in which you benefit.

Relief at source


When you make a personal contribution into your pension fund, then the government will add 20% of the contribution as basic rate tax relief.

See below for a simple example:
 
If you are a Higher Rate tax payer then you can also claim back a further £200 when you fill in your tax return, making the actual cost to you of the £1000 in your pension pot only £600! Further tax relief can be claimed by Additional Rate tax payers.

Investment sheltered from tax

Money in your pension pot can grow faster because the growth is not subject to any personal taxes. All interest on cash deposits is tax free and there is no tax payable on gains in property funds. In addition to these benefits, if you die before taking any money from your fund, then the money in your fund will normally be paid, free of Inheritance Tax, to the persons you have nominated.
 

Tax free lump sum

At any time after the age of 55 you can begin drawing money from your fund. You have the option at the time that you first start taking money to take a tax free lump sum of up to 25% of your fund value, the balance of the fund can then be used to provide a taxable income in your retirement.

Alternatively, you may decide to take a series of lump sums from your pot; if you do this then 25% of each lump sum will be tax free, with the other 75% taxed as income.
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