Pension tax relief and the tapered annual allowance for high earners

Most UK taxpayers get tax relief on their pension contributions, which means that the government effectively adds money to your pension pot. Basic rate taxpayers get a 25% tax top up; HMRC adds £25 for every £100 you pay into your pension.

Tax relief on UK pensions

When you’re thinking about how much money to save into your pension plan, it’s important to understand how pension tax relief works.

You can receive pension tax relief on any personal contributions that you make, up to 100% of your salary. There’s also a separate limit on the sum of all contributions (personal contributions including tax relief, and employer contributions) that you can make in a tax year capped at £60,000 gross for (2023/24). This amount is known as the annual allowance and any contributions that you make over this limit are taxed at your highest rate.

Under the right circumstances you may have the option to carry forward any unused allowances from the previous three years, totalling up to £120,000, on top of your current year’s annual allowance.

Lower income pension tax relief

If you earn less than £3,600 annually or don’t earn anything, the maximum amount you can contribute to your pension within the tax threshold is £2,880, bringing your total annual contribution to £3,600 once tax relief’s added.

Higher and additional rate pension tax relief

Most basic rate taxpayers get a 25% tax top up, so if you paid £100 into your pension, HMRC would effectively add another £25 which would bring the total contribution up to £125. PensionBee will claim this tax top up on your behalf if you’re paying into a PensionBee plan. Higher and additional rate taxpayers can claim a further 25% and 31% respectively through their Self-Assessment tax returns.

You can claim this tax back in three easy steps.

Tapered annual allowance and tax relief

A new tapered allowance has been introduced, which affects the pension tax relief limits for high earners. It basically means that if your adjusted income (your income plus pension contributions) is over £260,000, your annual pension tax relief limit is reduced, and the amount tapers all the way down to £10,000 for incomes of £360,000 or more.

This table shows how the tapered allowance works:

Earnings New annual allowance
Up to £260,000 £60,000
£270,000 £55,000
£280,000 £50,000
£290,000 £45,000
£300,000 £40,000
£310,000 £35,000
£320,000 £30,000
£330,000 £25,000
£340,000 £20,000
£350,000 £15,000
£360,000 £10,000

Claiming tax relief with PensionBee

When you make personal contributions to your PensionBee pension, we’ll add your 25% tax top up automatically! Please note that we’re only able to apply for the standard basic rate tax relief. If you’re a higher-rate tax payer, you’ll need to claim any additional tax relief yourself through your Self-Assessment tax return.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Last edited: 31-10-2023

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