Why you might be able to claim more tax relief while tax bands are frozen

Contributing to a pension is highly tax-efficient, largely thanks to tax relief. Yet, very few people actually know how much tax relief they receive.

Recent PensionBee research found that nine-in-10 people don’t know the rate of tax relief they receive on their pension contributions.

This means around 90% of savers aren’t aware of just how tax-efficient it is to contribute to their pensions. Not only that, but it could mean they’re missing out on claiming higher and additional rate relief. 

With the Income Tax bands frozen until 2031, you could be paying more tax than you used to. What you might not know is that your pension contributions could offset the charge.

In this blog, find out how tax relief works and why frozen tax bands mean you could claim more relief.

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Tax relief depends on which Income Tax band you fall in

Pension contributions are highly tax-efficient because you don’t pay Income Tax on them.

The table below shows you the Income Tax bands in 2026/27:

When you contribute to your pension, you don’t pay Income Tax on those earnings, removing that tax rate. In effect, that means a £1,000 pension contribution technically only ‘costs’:

• £800 for basic rate taxpayers;
• £600 for higher rate taxpayers; or
• £550 for additional rate taxpayers.

As long as you have earnings in that tax band, you could receive relief at that rate on contributions. How you receive that tax relief will depend on how you contribute to your pension:

• At source - you contribute already-taxed income into your pension. You then receive tax relief on that money.
• Net pay - your pension contributions are taken off your earnings before Income Tax is charged.
• Salary sacrifice - you and your employer agree for you to take a lower salary in exchange for a contribution to your pension. This removes not only the Income Tax charge, but also National Insurance (NI). Bear in mind that salary-sacrificed contributions above £2,000 are set to be subject to NI from April 2029.

However you contribute to your fund, this is highly tax-efficient. You’ll cut your tax bill and pay more into your pension. Those contributions are invested and could generate returns, which could compound over time and further boost your savings in the long term.

Limits on pension contributions and tax relief 

You can tax-efficiently contribute to your pension up to the annual allowance each tax year. This is the limit on the gross amount that can be saved into a pension each tax year without incurring tax charges.

The current standard annual allowance for pension contributions is £60,000 (2026/27) - this includes personal, employer and any third party contributions.

There’s a separate limit on tax relief. You can receive tax relief on personal and third party contributions up to 100% of your salary, capped at £60,000 per year (2026/27).

Note that you may be able to make bigger pension contributions in a single tax year if you carry forward unused allowance from previous years.

Meanwhile, your annual allowance may be restricted if you’re a high earner or you’ve already flexibly accessed your pension.

Claiming higher rates of relief on at source contributions

There’s a key point to bear in mind for at source contributions: you’ll need to claim any higher or additional rate relief you’re eligible for yourself.

Net pay and salary sacrifice arrangements don’t have this issue, as you don’t pay the tax in the first place.  

But with relief at source, you’re claiming back tax you’ve already paid. Basic rate relief (20%) is generally claimed by your pension provider and added to your pot automatically.

That isn’t the case for the higher and additional rates, which you need to claim yourself. If you don’t, HMRC keeps it. That’s an extra 20% or 25% relief you could be leaving on the table.

You can get this extra relief by filing a Self-Assessment tax return or contacting HMRC directly. 

If you’ve been paying higher or additional rate tax but not claiming tax relief on contributions, then don’t worry. You can backdate this for up to the last four tax years. In 2026/27, that means you could claim tax relief you were entitled to back to 2022/23.

Frozen tax bands mean you may be able to claim more relief

You might think that these higher rates of tax relief don’t matter to you, especially if you’re a basic rate taxpayer. But, a freeze on the Income Tax bands means you could pay more tax than you expect in the next few years.

Tax bands are supposed to rise annually with inflation. That would keep the amount of tax you pay steady as your income increases alongside the cost of living.

However, the government last raised the thresholds in line with inflation in April 2021. Since then, the Personal Allowance and basic and higher rate Income Tax bands have remained the same. 

But rather than raising the bands, the government has frozen them. This was initially until April 2026, before being extended to April 2028 and then April 2031. 

Meanwhile, the additional rate threshold actually fell from £150,000 to £125,140 in April 2023. That means you now pay the top 45% rate sooner. 

So, if your income increases - whether that’s a pay rise, bonus, or inflation-linked uplift - your total earnings could be pulled into the next band up.

In that case, the portion of your earnings pulled into the next band would be taxed at 40% or 45%, depending on which band you were in previously.

For example, imagine that your earnings are £50,000 and you receive a £5,000 pay rise. That takes your total income to £55,000. Now, £4,730 of your earnings face 40% tax.

Using your pension to offset your tax bill

This is where pensions can be useful. Imagine that you want to contribute that £5,000 to your pension instead. Now, you’d be able to claim 40% relief on the portion of your earnings that fall in the higher rate tax bracket. 

So, your £5,000 contribution technically only ‘costs’ you £3,054 because you can receive:

• £1,000 tax relief at the basic rate; and
• An extra £946 tax relief at the higher rate.

Remember, how this is applied will depend on how you contribute to your pot:

• At source - after receiving the money in your pay, you contribute £4,000 into your pension. This is grossed up to £5,000 as your provider reclaims 20% basic rate tax relief. You can then claim up to £946 more tax relief on your Self-Assessment return or via a tax code change.
• Net pay - £5,000 goes straight into your pension from your earnings. You pay no Income Tax on that part of your salary. NI still applies to those earnings.
• Salary sacrifice - you sacrifice £5,000 of salary, meaning you now earn £50,000. This £5,000 goes straight into your pension. You pay no Income Tax on this, and also save around £116 in NI. Note that employee NI is set to be applied on salary sacrificed pension contributions above £2,000 from April 2029.

While the bands are frozen, you might be dragged into paying more tax. But if you pay into your pension - and ensure you’re claiming all the tax relief you’re eligible for - you could offset this tax rise.

Summary

As you pay into your pension, check your rate of tax relief - you might be able to claim more than you think.

Knowing how much tax relief you’re eligible for could help you make sensible decisions with your pension, growing your pot and keeping your wealth tax-efficient. 

For more information, read our guide to pensions and tax.

Risk warning

Please note that tax rules change regularly, and the actual tax benefits you receive will depend on your individual circumstances. If you’re not sure, please seek professional advice.

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.