Last updated: 14 October 2026
Can you increase pension contributions to reduce higher-rate tax?
Yes. Personal pension contributions get tax relief at your highest rate. When you pay into a personal pension, the provider claims 20% basic-rate relief from HMRC, and your basic rate band is extended by the gross contribution, so less of your income is taxed at 40%. For 2026/27, the higher rate applies to income over £50,270, so contributions that bring your taxable income below that level save 40% on every pound.
How the relief works
| Type of contribution | How relief is given |
| Personal pension (relief at source) | 20% added by the provider; higher-rate relief through Self Assessment or your tax code |
| Workplace scheme (net pay) | Deducted before tax, so full relief is automatic |
| Salary sacrifice | Salary reduced; saves income tax and NIC (NIC saving capped at £2,000 a year from April 2029) |
| Employer contribution from your company | Deductible for corporation tax; not taxable on you |
Example
Dan earns £60,000 in 2026/27. He pays £8,000 into a personal pension, and the provider adds £2,000 relief, so £10,000 goes in. His basic rate band is extended by £10,000, so £9,730 of income that would have been taxed at 40% is taxed at 20% instead. He claims around £1,946 of extra relief through his tax return, so the £10,000 contribution costs him about £6,054.
The £100,000 trap
If your adjusted net income is between £100,000 and £125,140, you lose £1 of Personal Allowance for every £2 over £100,000, an effective 60% tax rate. Pension contributions reduce adjusted net income, so they can restore the allowance. They can also help parents keep tax-free childcare and keep Child Benefit if income is near the £60,000 to £80,000 charge band.
Limits to watch
- Annual allowance: £60,000 a year, including employer contributions, or your earnings if lower
- Carry forward: unused allowance from the previous 3 years can be used if you were a scheme member
- Tapered annual allowance: reduces to as little as £10,000 if your adjusted income is over £260,000
- Money purchase annual allowance: £10,000 once you’ve flexibly accessed a pension
How to claim higher-rate relief
For relief-at-source pensions, claim on your Self Assessment return, or ask HMRC to adjust your tax code if you don’t file a return. You can backdate claims for up to 4 years.
Pensions and Inheritance Tax
From 6 April 2027, most unused pension funds will be included in your estate for Inheritance Tax. Saving into a pension is still tax-efficient for income tax, but consider your estate plans too.
Company directors
If you run your own company, an employer pension contribution is often more efficient than taking extra salary or dividends. There’s no income tax or NIC on it, and the company deducts it from profits, as long as the amount is reasonable for the work you do.
Frequently asked questions
Can I contribute more than my salary?
Relief is limited to your earnings, or £3,600 gross if higher.
Do dividends count as earnings?
No, only salary and trading profits.
When must I pay to get relief this year?
By 5 April.
Can I claim relief for past years?
Yes, up to 4 years back, if not already claimed.
Related: whether it’s too late for higher-rate relief, sheltering income with pension contributions and a lump sum contribution before retirement.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with pension tax planning. See our small business 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.
