Tax year: 2026/27 | Last reviewed: 2 October 2026
Pension contributions are one of the few remaining ways to get tax relief at your highest rate of income tax. For additional rate taxpayers, every £1,000 paid in can put £1,250 into your pension for a real cost of under £700. Here is how it works for 2026/27.
How relief at source works
With most personal pensions and SIPPs, you pay in from your net income and your provider claims 20% basic rate relief from HMRC. Pay in £8,000 and £10,000 lands in your pension. If you pay tax at 40% or 45%, you claim the extra relief through your Self Assessment tax return. It is not automatic, and it is one of the most commonly missed claims we see.
Worked example: additional rate taxpayer
- You pay £1,000 into your pension
- Your provider adds £250, so £1,250 goes into the pension
- Your basic rate band is extended by £1,250, saving tax at 25% (the difference between 45% and 20%): £312.50
- Net cost: £687.50 for £1,250 in your pension, 45% effective Income Tax relief on the £1,250 gross contribution under these assumptions. This is tax relief, not investment growth or an 80% tax saving
For a higher rate taxpayer the extra relief is 20%, so £1,250 in the pension costs £750.
The 60% band
Between £100,000 and £125,140, your Personal Allowance is withdrawn at £1 for every £2 of income, creating an effective 60% rate. A pension contribution that brings your adjusted net income back to £100,000 gets relief at 60%. Our worked example of £25,000 in a pension for a £10,000 cost shows the numbers. It can also restore Tax-Free Childcare and 30 hours funded childcare. See the £60,000 and £100,000 traps.
Limits to watch
- Annual allowance: £60,000 of total contributions (yours plus your employer’s), with unused allowance carried forward from the previous three tax years.
- Tapered allowance: the taper requires both threshold income over £200,000 and adjusted income over £260,000. The two income measures have different definitions; check the full calculation rather than salary alone.
- Money purchase annual allowance: £10,000 once you have flexibly drawn pension income.
- Earnings cap: personal contributions only get relief up to 100% of your relevant UK earnings, or £3,600 gross if higher. Dividends and rental income do not count as earnings.
Employer contributions for directors
If you run a limited company, employer pension contributions are often even better. Qualifying employer contributions can receive corporation tax relief where the relevant conditions are met. They are not subject to the personal relevant-earnings cap in the same way, but pension allowance and other rules still apply. A £10,000 employer contribution saves up to £2,650 of corporation tax in the marginal relief band.
Changes ahead
- From April 2027, most unused pension funds will be included in your estate for inheritance tax.
- From April 2029, NI relief on salary sacrifice pension contributions is due to be capped at £2,000 a year.
Neither removes the income tax relief on contributions, but both change how pensions fit into wider planning.
FAQs
How do I claim higher rate pension relief?
Include your gross personal contributions on your Self Assessment tax return, or write to HMRC if you do not file one.
Can I backdate a claim?
Yes, for up to four tax years by amending returns or writing to HMRC.
Is a workplace pension different?
Under net pay arrangements, relief is given at your top rate automatically through payroll, so there is nothing more to claim. Try our pension tax relief calculator.
Talk it through with Digivolve
We calculate the best pension contribution before 5 April each year and claim the extra relief on your tax return.
This article is general information based on the rules for the 2026/27 tax year as at October 2026. It is not personal tax advice. Rates and thresholds can change, so please speak to us before acting.