While there is no limit on how much you can contribute to a pension, the lifetime allowance is essentially a cap on the amount of pension benefit that can be drawn before triggering an extra tax charge. As of the 2019/20 tax year, the lifetime allowance is £1,055,000 However, there are certain circumstances in which pension benefits are not included in the lifetime allowance. In which case, lifetime allowance enhancement factors allow you to benefit from UK tax relief where you haven’t previously.
- If you’ve earned some of your pension benefits while living abroad and did not receive UK tax relief on those contributions
- If a portion of your pension benefits have been transferred from an overseas pension you did not receive UK tax relief on
- If you receive a pension credit following a divorce and the funds have already been tested against your partner’s lifetime allowance
- If any of your pension benefits are from a pension credit from before 6 April 2006
Note, you must apply at HMRC for these enhancement factors, they are not granted automatically. Therefore, you would probably know in case you hold them.
See also pension protection