Tax Relief on Pension Contributions in 2026/27: Relief at Source, Net Pay and the Annual Allowance
Last updated 12 June 2026
You get Income Tax relief on personal pension contributions at your highest marginal rate, capped at 100% of your relevant UK earnings and by the £60,000 annual allowance for 2026/27. In a relief at source scheme your provider adds basic-rate relief automatically — £80 paid in becomes £100 — and 40% or 45% taxpayers claim the rest through Self Assessment. In a net pay scheme contributions leave your pay before tax, so full relief is automatic. High earners with adjusted income over £260,000 see the allowance tapered to as little as £10,000, and unused allowance can be carried forward from the previous three tax years.
- The annual allowance for 2026/27 is £60,000 — unchanged since 2023/24 — and your own contributions also can't exceed 100% of your relevant UK earnings for relief (gov.uk).
- Relief at source: your provider claims 20% from HMRC automatically, so an £80 contribution becomes £100 in your pot.
- Higher (40%) and additional (45%) rate taxpayers must claim the extra 20% or 25% themselves — via Self Assessment or by contacting HMRC. It is not added automatically.
- Net pay: contributions are taken from gross pay before Income Tax, giving full marginal relief with no claim needed — but no top-up if you earn under the £12,570 Personal Allowance.
- The tapered annual allowance applies only when threshold income exceeds £200,000 and adjusted income exceeds £260,000; it falls £1 for every £2 over, to a £10,000 floor.
- Flexibly accessing a defined contribution pension triggers the £10,000 Money Purchase Annual Allowance, which cannot be carried forward.
- Carry forward lets you use unused allowance from the three previous tax years — up to £240,000 of total allowance in 2026/27 if you qualify.
How does tax relief on pension contributions work in 2026/27?
The government refunds the Income Tax you would have paid on money you put into a registered pension, which means relief is worth your highest marginal rate: 20%, 40% or 45% in England, Wales and Northern Ireland (Scotland has its own rates). Relief is capped at 100% of your relevant UK earnings in the tax year — broadly salary or self-employment profit; dividend income generally does not count — and by the £60,000 annual allowance. Even with no earnings at all, you can pay in up to £2,880 a year and your provider claims £720 in relief, making £3,600 gross. Which of the two relief mechanisms applies depends on how your scheme is set up, and the difference matters.
What is the difference between relief at source and net pay?
Relief at source takes contributions from your after-tax pay and your provider claims basic-rate relief from HMRC; net pay takes contributions from your pre-tax pay so the relief happens in your payslip. All personal and stakeholder pensions (including SIPPs) use relief at source; workplace schemes can use either method.
| Relief at source | Net pay arrangement | |
|---|---|---|
| How it works | You pay in from taxed income; the provider adds 20% (£80 in → £100 invested) | Contribution is deducted from gross pay before Income Tax is calculated |
| Basic-rate relief | Automatic — claimed by the provider | Automatic — you simply aren't taxed on the contribution |
| 40%/45% relief | You must claim the extra via Self Assessment or HMRC | Automatic — nothing to claim |
| If you earn under £12,570 | Still gets the 20% top-up | No relief — there is no tax to remove |
| Typically used by | SIPPs, personal and stakeholder pensions, some workplace schemes | Many workplace (especially defined benefit) schemes |
The low-earner row is the trap to check: in a net pay scheme, someone earning below the Personal Allowance gets no relief on contributions, while the same person in a relief at source scheme would have 20% added. If you're unsure which method your workplace scheme uses, ask your employer or provider — your payslip and annual statement will also show it.
A related option is salary sacrifice: you give up salary and your employer pays that amount into your pension instead. Because your contractual pay falls, you save National Insurance as well as Income Tax — see our National Insurance classes guide. Note that sacrificed salary is added back when working out threshold income for the taper (below), so it can't be used to dodge that test.
How do higher and additional rate taxpayers claim extra relief?
In a relief at source scheme, only the 20% arrives automatically. If you pay 40% tax you can claim a further 20% on the income you paid 40% tax on, and 45% taxpayers can claim a further 25% — through your Self Assessment return or by contacting HMRC to adjust your tax code (gov.uk). Scottish taxpayers claim the difference against Scottish rates: an extra 22% at the 42% rate, 25% at 45%, and 28% at the 48% top rate. Money left unclaimed does not appear by magic — HMRC estimates of unclaimed relief exist precisely because people skip this step.
Here is what £10,000 gross in your pension actually costs in 2026/27 (rest of UK, assuming enough income taxed at each rate):
| Taxpayer | You pay in | Provider adds | You claim back | Net cost of £10,000 |
|---|---|---|---|---|
| Basic rate (20%) | £8,000 | £2,000 | £0 | £8,000 |
| Higher rate (40%) | £8,000 | £2,000 | £2,000 | £6,000 |
| Additional rate (45%) | £8,000 | £2,000 | £2,500 | £5,500 |
For earners between £100,000 and £125,140 the effect is stronger still: contributions reduce adjusted net income, restoring the tapered Personal Allowance and unwinding the 60% effective rate explained in our tax bands guide. The same mechanism can reduce or remove the High Income Child Benefit Charge.
What is the pension annual allowance for 2026/27?
The annual allowance is £60,000 for 2026/27, the same level it has held since 2023/24 (gov.uk). It counts everything going into your pensions across all schemes in the tax year: your contributions, the tax relief added, and anything your employer pays in. Two further limits sit alongside it:
- The earnings cap. Your own contributions only attract relief up to 100% of your relevant UK earnings. Employer contributions are not limited by your earnings — relevant for limited company directors paying themselves mainly in dividends (see our dividend tax guide).
- The Money Purchase Annual Allowance (MPAA). Once you flexibly access a defined contribution pension — broadly, taking taxable income from it rather than just the tax-free lump sum — your allowance for further defined contribution saving drops to £10,000 (2023/24 onwards, per HMRC's pension scheme rates).
Exceed your allowance and the excess is taxed as income via an annual allowance charge, declared on your Self Assessment return. If the charge is over £2,000 you can usually require your scheme to pay it from your pot ("Scheme Pays"); you must still report it to HMRC either way.
How does the tapered annual allowance work for high earners?
Your £60,000 allowance is reduced only if you fail both tests: threshold income over £200,000 and adjusted income over £260,000. The allowance then falls by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000 — which is reached once adjusted income hits £360,000 (gov.uk).
- Threshold income is broadly your net income minus your own relief at source pension contributions, with post-July-2015 salary sacrifice added back.
- Adjusted income is broadly your net income plus all pension contributions, including your employer's.
| Adjusted income (2026/27) | Excess over £260,000 | Reduction (÷2) | Annual allowance |
|---|---|---|---|
| £260,000 or below | — | — | £60,000 |
| £300,000 | £40,000 | £20,000 | £40,000 |
| £330,000 | £70,000 | £35,000 | £25,000 |
| £360,000 and above | £100,000+ | Capped | £10,000 (minimum) |
The £200,000 threshold income test is the practical escape hatch: if a relief at source contribution keeps threshold income at or below £200,000, the taper does not apply at all, whatever your adjusted income.
How does carry forward work?
If your pension savings this year exceed your 2026/27 allowance, you can mop up the excess with unused allowance from the three previous tax years — 2023/24, 2024/25 and 2025/26, each with a £60,000 allowance. Two conditions: you must have been a member of a registered pension scheme (or qualifying overseas scheme) in any year you carry forward from, and you must use the earliest year's unused allowance first (gov.uk). You cannot carry forward unused MPAA. Personal contributions remain capped by this year's relevant earnings, so very large carry-forward contributions usually need employer funding or a high-income year.
| Tax year | Annual allowance | Pension savings made | Unused allowance |
|---|---|---|---|
| 2023/24 | £60,000 | £20,000 | £40,000 |
| 2024/25 | £60,000 | £30,000 | £30,000 |
| 2025/26 | £60,000 | £40,000 | £20,000 |
| Available in 2026/27 | £60,000 | — | + £90,000 carried forward = £150,000 |
Unused 2023/24 allowance expires after 5 April 2027, so a bumper profit year is the moment to use it. If you're self-employed, our sole trader tax calculator shows the Income Tax a big year generates (note that personal pension contributions reduce Income Tax but not Class 4 National Insurance), and the rest of our calculators cover other situations.
Has the pension lifetime allowance been abolished?
Yes. The lifetime allowance was abolished from 6 April 2024. It was replaced by lump sum limits: the individual lump sum allowance is £268,275 and the lump sum and death benefit allowance is £1,073,100 (HMRC pension scheme rates). There is no longer a lifetime cap on the total value of your pension savings themselves.
Can I pay into a pension if I don't work?
Yes. With no relevant UK earnings you can contribute up to £2,880 a year into a relief at source pension and your provider claims 20% relief, making £3,600 gross (gov.uk). This works for non-earning partners and children's pensions alike.
Do employer contributions count towards the £60,000 annual allowance?
Yes — the annual allowance counts your contributions, the tax relief added and employer contributions across all your schemes. However, employer contributions are not restricted by your personal earnings, which is why company contributions are common for directors with low salaries.
What happens if I go over my annual allowance?
The excess is added to your taxable income and charged at your marginal rate via Self Assessment. If the charge exceeds £2,000 you can usually elect for your pension scheme to pay it from your pot under "Scheme Pays" — but you must still report the charge to HMRC on your return (gov.uk).
Do pension contributions help with the £100k Personal Allowance taper or the Child Benefit charge?
Yes. Gross pension contributions reduce your adjusted net income, which both the Personal Allowance taper (over £100,000) and the High Income Child Benefit Charge are tested against. A contribution that brings adjusted net income below those thresholds restores the allowance or reduces the charge — see our HICBC guide.
What triggers the £10,000 Money Purchase Annual Allowance?
Flexibly accessing a defined contribution pension — for example taking income drawdown beyond the tax-free lump sum, or an UFPLS payment. Once triggered it permanently caps further defined contribution saving at £10,000 a year, and unused MPAA cannot be carried forward.
Sources: Tax on your private pension contributions (gov.uk), Work out your tapered annual allowance (gov.uk), Check if you have unused annual allowances (gov.uk) and Pension schemes rates (gov.uk), verified 12 June 2026. Estimates for information only — not regulated tax or financial advice.