Can you get tax relief on pension contributions?

Any money you pay into your pension will benefit from tax relief.

This will give your pot an instant boost and means your savings will grow faster than they would in other investment accounts.

Here we explain everything you need to know about tax relief on pension contributions to help you make the most of the perk.

What is pension tax relief?

To encourage us all to put money away for retirement, the government pays tax relief on pension contributions that is equivalent to the rate of income tax that you pay.

The easiest way to picture this is to think of it as a rebate of the tax that you would otherwise pay on that money.

From your point of view, it’s a government top-up or bonus, rewarding you for paying into a pension.

How does tax relief work? 

You’ll get tax relief on your pension contributions in one of two key ways:  ‘relief at source’ or  ‘net pay.’ 

Relief at source

If you have a personal pension that you arranged yourself, you’ll always get tax relief through relief at source.

This might be if you’re self-employed or have pensions aside from your workplace pensions. 

With relief at source, contributions are paid from taxed income.

Your pension provider will therefore claim the basic 20% rate of tax relief from the government and pay it into your pension for you.

If you pay a higher or additional rate of tax, you’ll need to claim the further 20% or 25% tax relief that you’ll be entitled to by completing a tax return or using HMRC’s claim service.

It will then be up to you whether you use this money to reduce your income tax bill or take it as a cash rebate.

Some workplace pensions will also work in this way.

If you aren’t sure how tax relief is applied to your work scheme, it’s important to check with HR. If you pay a higher rate of tax and aren’t claiming your due, you could be missing out on valuable tax relief.

Tax relief and salary sacrifice

Some people use a process called salary sacrifice to contribute to their workplace pension.

This involves exchanging a portion of your salary for a bigger employer pension contribution. 

This can be incredibly tax-effective. By reducing your salary, you pay less tax, and you can either use this to top up your pension or increase your take-home pay. 

You and your employer will pay less national insurance too, and some employers will even agree to pass their savings on to you.

With this type of arrangement, higher-rate taxpayers will get the full rate of relief they are entitled to straightaway and won’t need to make a claim to HMRC.

However, it’s important to note that following an announcement in the Autumn 2025 Budget, salary sacrifice will be capped at £2,000 a year from April 2029.

Any pension contributions in excess of this will still benefit from full tax relief, but no further NI savings will be available for employees or employers.

Net pay

Many workplace pensions will use a net pay arrangement, where your contribution is taken from your earnings before they are taxed.

This means that you get the full rate of tax relief straightaway and won’t need to make a claim with HMRC if you pay higher or additional rate tax.

One downside of net pay is that if you don’t pay tax, you won’t receive any tax relief.

Not all workplace pensions work in this way, though. Some will use relief at source, so it’s important to check.

What if I don’t earn enough to pay tax?

With workplace pensions, if you don’t pay tax, whether or not you get tax relief on your pension contributions depends on whether your employer uses the relief at source or the net pay method.

With the net pay method, if you don’t pay tax, you can’t get tax relief.

You should get tax relief with relief at source if you don’t pay in more than your UK earnings.

All employers must offer a workplace pension scheme and make contributions if you meet certain criteria.

How is pension tax relief calculated?

You’ll receive tax relief at the highest rate of income tax that you pay.

If you’re a basic rate taxpayer, you’ll get 20% tax relief.

This means that every pound you pay in becomes £1.25 (because £1.25 taxed at 20% would become £1).

This is one of the biggest reasons why pensions are so hard to beat as an investment.

Find out if you're saving enough for retirement with our free private pension calculator.

Tax relief on pension contributions for high earners

If you’re a higher-rate taxpayer, you’ll get 40%. This means that every pound becomes around £1.66 – the equivalent of a 66% boost.

Whether or not you get the full rate of tax relief applied automatically depends on whether your scheme uses a relief at source or net pay arrangement (see above).

If it’s relief at source, you’ll get the basic 20% rate applied automatically, but you’ll need to claim back your extra tax relief via your tax return.

See our self-assessment tips for guidance on how to do this, and talk to your financial adviser or accountant for more information.

What if I don’t have an income at the moment?

If you’re not working or earning below £3,600 a year, you can still contribute to a personal pension – for example, if you transfer some savings or a partner contributes on your behalf – and get basic rate tax relief.

You can contribute a maximum of £2,880 a year, which will be boosted to £3,600 once tax relief has been applied.

You can pay in more if you wish, but any extra contributions will not receive tax relief.

Can pension contributions reduce your income for tax purposes? 

Yes - making pension contributions can reduce your income for tax purposes, and this can be handy from a financial planning point of view.

For example, if increased earnings mean you are about to go up into a higher-rate tax band, you can pay more into your pension to keep your income below it.

This can also be particularly helpful if you want to reduce your income to keep more of your child benefit, or to avoid the 60% tax trap which kicks in once your earnings exceed £100,000.

This can be complicated, though. If you aren’t sure a financial adviser can help you make the best decision for your circumstances.

How much can I pay into a pension and get tax relief?

It’s important to know how much you can pay into a pension and still receive tax relief. 

You can get tax relief on up to 100% of your annual earnings (a maximum of £60,000), which applies to both contributions from yourself and your employer.  

It’s worth flagging that the £60,000 annual allowance may be lower for some people, so it’s worth checking.

The annual allowance is enough for most people. But if you are able to pay in more from time to time (for example, you are self-employed with fluctuating income), you may be able to use any unused allowance from the last three years with carry forward rules.

If you exceed your limit, you may have to pay an additional tax charge.

Why is pension tax relief so important?

Tax relief on pension contributions is vital when it comes to saving for retirement. 

Quite simply, the more you pay in, the bigger the top-up you get from the government.

But it’s crucial to understand your allowances and limits so that you don’t contribute too much and end up paying tax charges. 

Get expert financial advice

Tax relief on pension contributions is a powerful benefit that can significantly enhance your retirement savings.

By understanding how relief works, the various methods available, and the limits and allowances, you can make the most of this opportunity to save more effectively.

Ensuring you stay informed and make strategic contributions can help you build a more secure financial future for yourself.

Unbiased can connect you to a qualified financial adviser who can look at your circumstances and ensure you’re receiving all the pension tax relief you’re entitled to, and avoid a hefty charge.