Pension tax relief gives you back the income tax on money you pay into a registered pension, at your highest rate. In a relief at source scheme, basic rate relief of 20% is added automatically, so an £80 contribution becomes £100 in the pension. Higher and additional rate taxpayers can claim a further 20% or 25%. Relief is available on personal contributions up to 100% of your UK earnings for the year, or £3,600 gross if you earn less, and total pension saving above the £60,000 annual allowance is taxed back.
How much relief you can get
Section 190 of Finance Act 2004 caps relief on personal contributions at the higher of two amounts:
- Your relevant UK earnings. Section 189 defines these as employment income, trading profits from a trade or profession you carry on yourself (including as a partner), and certain patent income. Dividends, rent and savings interest are not on the list, so they do not support relief;
- The basic amount of £3,600. A UK resident under 75 can get relief on gross contributions up to £3,600 a year even with no earnings at all. Relief on this basic amount is only given through a relief at source scheme, so in practice you pay £2,880 and the provider tops it up to £3,600.
You can pay in more than this, but there is no relief on the excess. HMRC can ask you to repay relief given on contributions above 100% of your earnings.
Separately, the annual allowance limits total pension saving from all sources, including your employer, to £60,000 for 2026/27. It is reduced for very high earners and, once you have flexibly accessed a pension, to £10,000 for money purchase saving. Our guide to pension contribution limits covers these in detail.
The three ways relief is given
How you get relief depends on how the scheme collects contributions, and this drives most of the confusion.
Net pay arrangement. Common in workplace and occupational schemes. Your employer deducts the contribution from your pay before working out income tax, so you get full relief at your highest rate straight away, with nothing to claim. The catch is that if you earn less than the Personal Allowance, you pay no tax and so get no relief.
Relief at source. Used by all personal and stakeholder pensions and by many workplace schemes. You pay from taxed income, and the provider claims 20% from HMRC and adds it to your pot. As an illustration, you pay £800, the provider adds £200, and £1,000 is invested. Non-taxpayers still get the 20% top-up, within the limits above. A Scottish starter rate taxpayer paying 19% still gets the full 20% and does not have to pay back the difference.
Claiming it yourself. Needed where your scheme is not set up for automatic relief, or where you pay tax above 20% on relief at source contributions. Relief is only available if the scheme is registered with HMRC, or is an overseas scheme that qualifies for UK relief.
Claiming higher and additional rate relief
Relief at source only gives you 20% automatically. If you pay more than that, the rest has to be claimed. For taxpayers in England, Wales and Northern Ireland, HMRC gives extra relief of:
- 20% on contributions up to the amount of income you paid 40% tax on;
- 25% on contributions up to the amount of income you paid 45% tax on.
HMRC's own example: someone earning £60,270 who pays £12,000 gross into a relief at source scheme has £10,000 of income taxed at 40%. They can claim the extra 20% on £10,000, which is £2,000, but nothing extra on the remaining £2,000 of contributions.
Scottish taxpayers claim extra relief of 1% up to income taxed at 21%, 22% up to income taxed at 42%, 25% up to income taxed at 45%, and 28% up to income taxed at 48%.
The claim goes on your Self Assessment return. If you do not file one, HMRC has an online claim service. Many higher rate taxpayers in relief at source schemes never make the claim, and the unclaimed relief does not arrive by itself.
Employer contributions and salary sacrifice
Contributions paid by your employer work differently. They are not taxed on you as a benefit, because section 308 of ITEPA 2003 exempts employer contributions to a registered scheme. They do not use your 100%-of-earnings limit, but they do count towards your annual allowance.
Salary sacrifice turns part of your salary into an employer contribution. You save income tax at your marginal rate and employee National Insurance, and the employer saves its 15% National Insurance. From 6 April 2029 the National Insurance saving will be capped: salary sacrificed above £2,000 a year will be liable to employee and employer Class 1 contributions. The income tax relief does not change. Our guide to employer pension contributions covers the employer's side.
Relief that does more than 20% or 40%
Pension contributions also reduce adjusted net income, which can lift you out of the Personal Allowance taper between £100,000 and £125,140. In that band a contribution saves tax at an effective 60%, as an illustration. Relief at source contributions are deducted gross, and net pay or salary sacrifice contributions reduce taxable pay directly. Adjusted net income is not the same measure as the "adjusted income" used for the annual allowance taper; our guide to adjusted income explains the difference.
What happens when you take the money out
Tax relief on the way in is matched by tax on the way out. Normally up to 25% of a pension can be taken tax-free, capped at the lump sum allowance of £268,275. The rest is taxed as income when drawn. Flexibly accessing a defined contribution pot, for example by taking cash from a flexi-access drawdown fund or an uncrystallised funds pension lump sum, also triggers the £10,000 money purchase annual allowance on future saving. That matters for anyone who plans to keep contributing after starting to draw.
HMRC's own guidance on pension tax relief sets out the claim routes. The limits are in its pension schemes rates table.
If you pay higher rate tax and contribute through a relief at source scheme, check that the extra relief has actually been claimed for each recent year. Acumon's income tax return team can make or correct those claims, and our tax planning service can size contributions against the taper bands and your annual allowance.