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It’s that time of year once more when you may be completing your tax return before the deadline of 31 January. But if the thought of sitting down with piles of invoices, receipts, and pension and income statements fills you with an annual sense of horror, then at least there is some good news that you may have overlooked or forgotten: the tax relief you get on your pension contributions.

Your pension provider can claim tax back from the government on your pension savings at the basic tax rate of 22%. That means that for every £78 you put in your pension pot the government will add £22, making it a round £100.

What if I fall into a higher tax band?
And the news just gets better. If you are on a higher tax rate of 40%, you can also get 40% tax relief on the amount you put into your pension/s. The logistics are slightly more complicated though: the first basic tax rate of 22% will be claimed back automatically from HMRC by your pension provider, in the same way as for a lower rate taxpayer. But you will also be able to claim back the other 18% when you fill in your annual tax return, or by claiming by letter to your tax office.

What if I don’t pay tax though?
Even if you’re not earning/paying tax, you can still pay up to £2,808 into a pension and your provider will claim 22% tax relief on your behalf. You can, of course, pay more than that into your pension but £2,808 is the maximum amount that the government will pay tax relief on, unless or until you earn more.

Is there an overall maximum amount on which I will get tax relief?
There is no limit on the amount of money you can put into any number of pensions. You will also get tax relief on contributions up to 100% of your earnings each year, although this is subject to an annual allowance of £225,000 (for the tax year 2007/8). Savings above that will be subject to tax.

Tax and legislation are likely to change in the future, and it will be worth checking the situation for the new tax year commencing 6 April 2008 - for example, basic rate tax relief is due to change from 22% to 20% as of that date. However, the following tips should help clarify the basics:

1. You can save in more than one pension scheme at the same time - you will be able to claim tax relief on all savings, up to an annual allowance of £225,000 in 2007-8 (although this will rise to £255,000 by 2010-11).
2. You can claim tax relief on pension contributions up to 100 per cent of your annual earnings. That means that if you put £100 into your pension scheme, the government will pay tax relief of at least £28.
3. You can still get tax relief on pension contributions, even if you are not earning or paying tax. You can put up to a maximum of £2,808 into a pension/s each year and the government will top this up with tax relief to the tune of £792, giving you total pension savings in one year of £3,600. Any contribution over £2,808 per year will, however, be eligible for tax charges.

Don’t forget though, that pension rules may change, so it’s worth keeping a close eye on developments, especially at the start of each new tax year. Until then, though, pension tax relief remains the silver lining to the dark cloud of the annual tax return.