When you make a pension contribution, you can get tax relief up to the highest rate of income tax you pay. It’s even possible to get tax relief if you don’t pay any income tax at all.
For all contributions you make to your Freetrade SIPP, we’ll automatically claim 20% basic rate tax relief on your behalf. We’ll show you at the point of your payment how much HMRC will send you, and they’ll pay it directly into your SIPP within 6-11 weeks.
If you’re a higher rate payer with a 40% income tax deduction, it’s also possible to claim back an extra 20%. Effectively, adding £1000 to your Freetrade SIPP has cost you £600. Those paying 45% could claim back up to 25% additional tax relief, rather than the 20% example above. You can read more about this here. Any higher or additional rate tax relief would have to be claimed back by you and would not be added to your SIPP account.
You’ll need to have paid the tax in order to claim it back in this example, and this is usually done with a self-assessment tax return or by contacting your local tax office.
For those earning and not paying income tax (for example anyone earning less than £12,750* throughout the tax year), basic rate tax relief is still available. Similarly, those with no relevant earnings at all are allowed to pay in up to £2880, within HMRC adding to this by as much as £720.
These rules are subject to change, and Scottish taxpayers should check their own tax bands and tax relief rates.
*Correct for the 2022 tax year.