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Reclaiming the Personal Allowance

A look at how making a pension contribution can help individuals reclaim all or part of their personal allowance where this has been lost.

Key Points

Individuals with adjusted net incomes in excess of £100,000, lose their personal allowance at a rate of £1 for every £2 of income over £100,000.

In the tax year 2018/2019, for adjusted net incomes over £123,700, an individual’s personal allowance is completely lost.

Making a pension contribution, where it reduces adjusted net income below £123,700, can potentially allow an individual to reclaim part or all of their personal allowance.

The effective rate of tax relief on the personal pension contribution can be as much as 60%.

Reclaiming all or part of the personal allowance

How is the personal allowance lost?

The personal allowance is reduced as follows:

  • For every £2 of adjusted net income over £100,000, an individual loses £1 of their personal allowance
  • In the 2018/19 tax year, this results in the complete loss of the personal allowance for adjusted net incomes over £123,700

How can making a pension contribution help?

Making a pension contribution can:

  • Effectively reduce an individual’s adjusted net income
  • Reduce income to under £123,700 enabling them to reclaim part of their personal allowance
  • Enable individuals to reclaim the full personal allowance where adjusted net income is reduced to £100,000 or less

Example - Sandra

Sandra has adjusted net income of £123,700 and has therefore lost her personal allowance.

Can making a pension contribution help Sandra reclaim her lost personal allowance?

If Sandra makes a net pension contribution of £18,960, she can:

  • Receive a grossed up pension contribution of £23,700
  • Receive higher rate tax relief (through a self assessment tax return)
  • Reduce her adjusted net income down to £100,000
  • Reclaim her full personal allowance of £11,850

Effective cost to Sandra:


Effective rate of tax relief is:


Planning considerations


Pension tax planning can help clients:

  • Make full use of the annual allowance
  • Utilise any carry forward of unused allowances
  • Build up retirement benefits

Pension tax planning can help clients:

  • Reclaim part or all of the personal allowance (up to £11,850 for 2018/19)
  • Effectively get up to 60% tax relief on a pension contribution
  • Reduce their overall levels of income tax
  • Reduce tax due on other investment income or gains within the tax year

This briefing note is also available as a PDF

This information is based on our current understanding of tax law, HMRC practice and legislation as at April 2018 which may change and it should not be considered a definitive statement in law. We are also providing this on the strict basis that it is for your consideration only and that ultimate responsibility for any advice given to your client lies with yourself. Canada Life and Canada Life International Limited cannot be held responsible for the results of any action or inaction the client may undertake.

This website is for UK professional advisers only and is not approved for use by private customers.

Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority.

Canada Life International Assurance (Ireland) DAC is authorised and regulated by the Central Bank of Ireland.

Stonehaven UK Limited and MGM Advantage Life Limited, trading as Canada Life, are subsidiaries of The Canada Life Group (U.K.) Limited. Stonehaven UK Ltd is authorised and regulated by the Financial Conduct Authority. MGM Advantage Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority.