Last updated: 14 October 2026
Can you reduce your tax by making pension contributions?
Yes. Pension contributions get tax relief at your highest rate of income tax. If you pay into a personal pension, the provider adds 20% basic-rate relief, and higher and additional-rate taxpayers claim the rest through Self Assessment. Contributions also extend your basic-rate band, which can bring income back below key thresholds, such as £50,270, £60,000 for the High Income Child Benefit Charge and £100,000 for the Personal Allowance taper.
How much relief you can get
- Relief is limited to 100% of your relevant UK earnings, or £3,600 gross if you have no earnings
- The annual allowance is £60,000 in 2026/27
- Unused allowance from the 3 previous tax years can be carried forward if you were a member of a pension scheme
- High earners may have a tapered annual allowance (down to £10,000)
The thresholds pension contributions can help with
| Threshold | What you can save |
| £50,270 higher-rate threshold | An extra 20% relief on contributions in the 40% band |
| £60,000 to £80,000 Child Benefit charge | Reduce or remove the charge |
| £100,000 to £125,140 | Restore the Personal Allowance, an effective 60% relief |
| £125,140 additional-rate threshold | An extra 25% relief on contributions in the 45% band |
Example
Raj earns £110,000. He loses £5,000 of Personal Allowance. A net pension contribution of £8,000 (£10,000 gross) brings his adjusted net income down to £100,000. He restores his full allowance, saving £4,000 of tax on top of the £2,000 basic-rate top-up. That is £6,000 of relief on a £10,000 contribution.
Salary sacrifice
If your employer offers salary sacrifice, you give up salary in exchange for an employer pension contribution. You save income tax and employee NIC, and your employer saves 15% employer NIC. From 6 April 2029, only the first £2,000 a year of pension contributions made through salary sacrifice will be free of employee and employer NIC (HMRC policy paper, 4 December 2025). Income tax relief is unaffected, and ordinary employer contributions stay NIC-free.
Company directors
Employer contributions from your company are deductible for corporation tax and avoid income tax, dividend tax and NIC entirely.
Can you “shelter” other items?
Pension contributions shelter income, not assets. You can’t put property or other possessions into most pensions without cash. Some SIPPs and SSASs can hold commercial property, with strict rules.
Avoiding the annual allowance charge
Contributions above the £60,000 annual allowance (less if your income is above £260,000, or you have flexibly accessed a pension) trigger a tax charge. You can carry forward unused allowance from the previous 3 tax years if you were a member of a registered scheme in those years. Check your pension statements before making a large one-off contribution, and keep the pension input amounts for each year.
Frequently asked questions
Is it too late to claim higher-rate relief for past years?
No, you can claim for 4 years. See is it too late to get higher-rate pension relief.
Do pensions reduce my capital gains tax?
Indirectly. They extend your basic-rate band, so more gains may be taxed at 18% rather than 24%.
Will pensions still avoid IHT?
Not from 6 April 2027 for most unused funds.
Can I contribute for my spouse?
Yes. Relief is based on their earnings.
Related: NHS pension and higher-rate relief.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with pension tax relief. See our tax refund accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
