Pension tax relief explained

Pensions are one of the few places the tax system gives you money back for saving. The basic idea is simple: you get tax relief on your contributions at your marginal rate, so the government tops up what you save — 20% for most people, and more for higher earners.

Relief at source: how the first 20% is added

For personal pensions and SIPPs, you pay in net and the provider claims basic-rate relief from HMRC. Pay £80 and the provider adds £20, giving you a £100 gross contribution. This happens automatically — no tax return needed.

The extra relief for higher earners

If you’re a higher-rate taxpayer (40%) you claim an extra 20% on your Self Assessment return. An additional-rate taxpayer (45%) claims 25%. In total, a £100 gross contribution costs:

• £80 for a basic-rate taxpayer (20% relief)
• £60 for a higher-rate taxpayer (40% relief)
• £55 for an additional-rate taxpayer (45% relief)

Example. You pay £3,200 into a personal pension as a higher-rate taxpayer. The provider claims 20% (£800) and adds it, making a gross contribution of £4,000. On your tax return you claim another £800. Total relief is £1,600 — 40% — so the contribution really costs you £2,400.

The annual allowance

Tax relief isn’t unlimited. In 2026/27 the annual allowance is £60,000 — including your contributions, your employer’s and any relief added — with a lifetime limit of 100% of your annual earnings. Unused allowance from the previous three years can be carried forward. If you earn over £260,000 the allowance starts to taper, and once you draw from your pension it can fall to £10,000.

The £3,600 rule for non-earners

You don’t need an income to benefit. Anyone can pay up to £3,600 gross (£2,880 net) into a personal pension each year and still get 20% relief — a useful way for non-earning partners to save.

See the maths

Use the Pension Tax Relief calculator for your exact relief and net cost, and the salary calculator to model pension contributions within your take-home pay.