Tax relief on pension contributions

The current pension rules allow you to make contributions to a registered pension scheme and receive tax relief.

You can pay as much as you like into your pension, but there is a limit on how much tax relief you will receive. You will only benefit from tax relief on the lower of 100% of net relevant earnings or the annual allowance (currently £60,000).

The tax relief that you receive by investing into a pension depends on your tax rate. Contributions are paid net of basic rate tax, so if you are a basic rate taxpayer, you pay 80% of the gross contribution, and your pension fund receive a 20% tax relief. If you are a higher or additional rate taxpayer, in addition to the 20% relief that you receive at source, you also receive a further 20% tax relief through submission of your self-assessment tax return.

If you have no earnings in a year, or earnings are less than £3,600, the most you will be able to pay into your pension is £2,880. If you have earnings over £240,000 your annual allowance may be tapered by £1 for every £2 you earn above £240,000. 

Date published 5 Dec 2012 | Last updated 3 May 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.