How tax relief on pension contributions works

In this section we will cover:

• How pension tax relief works
• How to carry forward unused pension contributions from previous tax years
• How to lower your taxable income by using pension contributions

When you add money to your pension, the government does too. This government top-up is known as pension tax relief.

If you’re a UK taxpayer and under the age of 75, every tax year you may be able to get tax relief on personal pension contributions up to 100% of your earnings (or £3,600 if you have no earnings in that tax year), or on contributions up to the government-set annual allowance, whichever is lower. The annual allowance is currently set at £60,000 per tax year, although if you are a high earner you may be affected by the tapered annual allowance. 

Tax rules vary by individual status and may change. J.P. Morgan Personal Investing does not provide tax advice. If you are unsure if a pension is right for you, please seek financial advice.

How does tax relief on pension contributions work?

Everyone, whether you’re working or not, is entitled to get basic rate tax relief at 20% from the government when you make contributions to your pension.

For example, if you wanted to have a total of £1,000 contributed to your pension, tax relief would mean that you’d only need to add £800 (which has already been taxed), as the government will add £200 (which is 20% of the gross amount).

Tax relief is linked to the tax band for the income that your contributions are paid out of. This means that if you’re a higher rate or an additional rate taxpayer you could claim extra tax relief on top of the basic 20%. Higher rate taxpayers can claim a further 20%, while additional rate taxpayers can claim an extra 25%.

If you live in Scotland, the income tax bands work differently, so the amount of tax relief you’re able to claim is slightly different.

Remember, your tax relief counts towards your total contributions and therefore affects your annual allowance – so don’t forget to factor this in when you’re calculating how much to put into your pension each year.

How do I get my pension tax relief?

If you have a personal pension, your pension provider claims your 20% tax relief on your behalf and adds it to your pension pot.

At J.P. Morgan Personal Investing, we claim the basic tax relief owed to Personal Pension customers on their behalf. If you are a higher rate or additional rate tax payer, you will be required to claim additional tax relief by completing a tax return.

You need to 'personally' claim tax relief on pension contributions if someone else pays into your pension – if your scheme allows for third party contributions – and you’re not part of a relief-at-source scheme, or if your pension scheme is not set up to automatically give you the tax relief. Our Personal Pension does not allow for third party contributions.

You can claim any tax relief you’re due through your annual tax return or by notifying HMRC.

Claiming tax relief on pension contributions for previous years

A scheme can claim tax relief on your behalf for up to six years. But if you have to claim your own tax relief, if you don’t get your tax relief automatically or you’re a high earner and didn’t claim your extra entitlement to tax relief, you’re able to back-date tax relief claims for the previous four years. If you believe you need to claim outstanding tax relief you should contact HMRC.

Tax relief after you’ve started to withdraw from your pension

In some situations, you may choose to continue to contribute to your defined contribution (DC) pension after you’ve started to flexibly take benefits from it. If this is the case, you should be aware that tax relief on these contributions has a reduced annual allowance, known as the Money Purchase Annual Allowance (MPAA). The MPAA for the current 2025/26 tax year is £10,000, and applies to defined contribution schemes.

Paying a lump sum into a pension fund

You can choose to pay one-off lump sums into your pension outside of your regular contributions. But don’t forget that you can only claim tax relief on personal contributions up to 100% of your earnings for that year or up to the annual allowance, whichever is lower. If you are a higher or additional rate taxpayer you need to claim tax relief yourself.

It’s important to keep track of your contributions throughout the year to ensure that you will receive tax relief if you want to pay a lump sum.

Pension contributions can lower taxable income

Employers can offer what is known as ‘salary sacrifice’, which is an arrangement that allows employees take a lower pre-tax salary in exchange for other benefits.

One common salary sacrifice arrangement involves agreeing to a reduced salary, with your employer contributing the difference directly into your pension. This can increase the value of your pension savings and can also reduce your taxable income, resulting in savings in both income tax and national insurance contributions.

Making contributions from previous tax years

While an annual allowance exists for pension contributions, you can make pension contributions from unused portions of your previous three tax years by using the pension ‘carry forward’ rules.

Carry forward allows you to receive tax relief on any unused portion of your annual allowance from the previous three tax years, as long as you were a member of a pension scheme during those years.

To use carry forward, you must make the maximum allowable contribution in the current tax year – £60,000 in 2025/26 – after which you can then use any unused annual allowances from the three previous tax years.

It’s important to remember that you’re not able to receive tax relief on contributions in excess of your earnings in a tax year, and you’ll only receive higher rate or additional rate tax relief to the extent you’ve paid the higher rate of tax.

Carry forward may be particularly helpful if you’re self-employed, your earnings can change significantly each year, or if you’re looking to make very large pension contributions.

How much can I contribute to my pension if I’m a high earner?

If you are a high earner, the maximum amount you can contribute to your pension and receive tax relief on is determined by the annual allowance, which is £60,000 for the 2025/26 tax year. However, at very high earning levels, under certain conditions your annual allowance will be reduced through the tapered annual allowance.

Tapered annual allowance

Your 'threshold income' is your total taxable income excluding pension contributions. Your 'adjusted income' is your total taxable income including all pension contributions made by you and your employer, minus any applicable reliefs.

If your threshold income is more than £200,000 and your adjusted income is more than £260,000, your annual allowance for that tax year will be tapered. For every £2 of adjusted income over £260,000, your annual allowance decreases by £1. The minimum tapered annual allowance is £10,000.

If you exceed your annual allowance, you will usually need to pay income tax on the excess amount. This is called an annual allowance tax charge.

How do I work out if I have a tapered allowance?

To find out if you have a reduced annual allowance for the tax year, you need to work out your threshold income and adjusted income. In broad terms, your threshold income is your total taxable income excluding pension contributions, while your adjusted income is your total taxable income including all pension contributions. It could be a good idea to visit HMRC’s website to help you work out your reduced tapered annual allowance.

Your total taxable income may include

• taxable earnings (salary, bonuses, commissions) after salary sacrifice
• dividend payments
• property rental income
• savings income
• profits from self-employment

Threshold income

To calculate your threshold income for a specific tax year, take your total taxable income, add any salary you’ve sacrificed for pension contributions, and subtract any personal pension contributions.

• You’ll need to include any salary you’ve sacrificed for pension contributions if the arrangement started or changed after 8 July 2015 (but you’ll need to check what your arrangement says).
• The personal pension contributions you need to subtract are only those that you have made to a personal or workplace pension – you can’t include employer contributions.
• You may also be able to subtract certain deductions, such as charitable gifts and trade losses. Section 24 of the Income Tax Act 2007 details all the reliefs you can deduct.

If your threshold income for the year is £200,000 or less, your annual allowance won’t be reduced.

If your threshold income is more than £200,000, you need to work out if your adjusted income is more than £260,000 to see if your annual allowance is affected.

Adjusted income

To calculate your adjusted income, take your taxable income for the year, add employer pension contributions and subtract any reliefs that apply.

• If you have a final salary scheme, you’ll also need to include any benefits you’ve built up in that.
• You’ll also need to add any contributions you’ve made to an occupational pension scheme through a net pay arrangement.
• The employer contributions also include any contributions made through salary sacrifice, irrespective of when the arrangement started.

If your adjusted income works out to be more than £260,000, you will have a tapered annual allowance for that tax year: for every £2 of adjusted income over £260,000, your annual allowance will decrease by £1.

The minimum tapered allowance is £10,000, so if your adjusted income is more than £360,000, you still will have an annual allowance of £10,000.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio can go down or up and you may get back less than you invest. Pension eligibility rules apply. Tax rules vary by individual status and may change. This is general information, not personalised tax advice. Seek financial advice if you're unsure if a pension is right for you.