Tax relief on pension contributions explained

What is pension tax relief?

When you save into a pension, the government likes to give you a bonus as a way of rewarding you for saving for your future. This comes in the form of tax relief.

When you earn tax relief on your pension, some of the money that you would have paid in tax on your earnings goes into your pension pot rather than to the government.

Tax relief is paid on your pension contributions at the highest rate of income tax you pay. So:

• Basic-rate taxpayers get 20% pension tax relief
• Higher-rate taxpayers can claim 40% pension tax relief
• Additional-rate taxpayers can claim 45% pension tax relief

In Scotland, income tax is banded differently, and pension tax relief is applied in a slightly alternative way.

• Starter rate taxpayers pay 19% income tax but get 20% pension tax relief
• Basic rate taxpayers pay 20% income tax and get 20% pension tax relief
• Intermediate-rate taxpayers pay 21% income tax and can claim 21% pension tax relief
• Higher-rate taxpayers pay 41% income tax and can claim 41% pension tax relief
• Top-rate taxpayers pay 46% income tax and can claim 46% pension tax relief

Find out more: UK income tax rates 2023-24 and 2024-25 

How pension tax relief works

If you are a basic-rate taxpayer and were to contribute £100 from your salary into your pension, it would actually only cost you £80.

The government adds an extra £20 on top - what it would have taken in tax from £100 of your salary.

Higher-rate (40%) and additional-rate (45%) taxpayers only need to pay £60 and £55 respectively to achieve the same £100 of pension savings.

Our short video explains how pension tax relief works.

Pensions tax relief calculator 2024-25

The amount of pension tax relief you get on your pension contributions depends on the top rate of income tax you pay. Our calculator gives you an idea of how much relief you'll get on contributions.

How do I claim pension tax relief?

The way tax relief is claimed depends on the type of pension you are saving into, and it's worth checking with your scheme to see what method it uses, as you might need to do some extra legwork to get the full tax relief you're entitled to. There are two main ways:

Pension tax relief from 'net pay'

A 'net pay' arrangement is used by some workplace pensions, and don't require you to do anything to get your full tax relief.

Your pension contributions are deducted from your salary before income tax is paid on them, and your pension scheme automatically claims back tax relief at your highest rate of income tax.

Pension tax relief at source

'Relief at source' applies to all personal pensions and some workplace pensions. So, if you have a private pension with an insurance company, or a self-invested personal pension (Sipp), this will apply to you.

If you're paying into a pension through your employer, your employer will take 80% of your pension contribution from your salary (technically known as 'net of basic rate tax relief').

Your pension scheme then sends a request to HMRC, which pays an additional 20% tax relief into your pension.

Under this system, higher and additional-rate taxpayers must complete a self-assessment tax return to receive the extra relief due to them.

Use the Which? tax calculator to complete your tax return and claim back pension tax relief. Tot up your tax bill, and submit it direct to HMRC.

How much pension tax relief can I earn in 2024-25?

The government puts a limit on the amount of pension contributions on which you can earn tax relief. This is called the pensions annual allowance.

It has been set at £60,000 for the tax year 2024-25.

Any pension payments you make over the £60,000 limit will be subject to income tax at the highest rate you pay.

However, you can carry forward unused allowances from the previous three years, as long as you were a member of a pension scheme during those years.

Find out more in our annual allowance guide.

Pension tax relief for non-taxpayers and low earners

Non-taxpayers, including spouses who aren't in employment and children, are eligible for tax relief of 20%, even though they don't pay tax.

Remember, you can save 100% of your income into a pension to earn tax relief, so long as it doesn't exceed £60,000 in a year.

So, if you earned £5,000 a year, you could save £5,000 into a pension.

But if you earn £3,600 or less, including people that don't earn any money, the maximum you can contribute is £3,600. This includes the government top-up, so your personal contribution can be no higher than £2,880