Pension tax relief is one of the most valuable benefits you’ll ever get from the government. When you save into a pension, you get tax relief on pension contributions from HMRC at your highest marginal rate depending on which income tax bracket you fall into.
This effectively means you have to pay less in ‘net’ to get your total ‘gross’ contribution.
So, if you’re a basic rate taxpayer you get tax relief at 20% (for the whole UK except Scotland, where tax bands are different). As such, to get a £100 contribution into your pension, you only need to pay in £80 net because the government tops up your contribution with tax relief.
There are three income tax brackets, meaning you currently receive pension tax relief on contributions at:
Use our 2024/25 Pension Tax Relief Calculator below to work out how much tax relief you could get on your pension contributions. It works out not just how much pension relief you’ll receive at source a basic rate taxpayer but also calculates how much extra relief you can claim as a higher and additional rate taxpayer.
Remember: Even after you apply for higher and additional rate pension tax relief from HMRC that extra cash doesn’t get paid straight into your pension as with basic rate tax relief.
Instead, most people get an adjustment to their tax code for the year, reducing their annual tax bill by an amount equivalent to the extra pension tax relief HMRC owes you. It’s up to you to pay that extra cash from a lower tax bill into your pension.
Even if you don’t pay tax because you’re earning less than £12,500 a year in the 2023/24 tax year, you can still get pension tax relief.
If you’re earning £3,600 or less, the maximum you can put in is £2,880, which the government will gross up with tax relief to the £3,600 figure.
While it’s useful to see how your pension contributions are boosted by tax relief, it’s important you take a wider view of your retirement plans than simply looking at the how much pension tax relief you’re owed.
This includes making sure you’re actually paying enough into your pension in the first place. Many people underestimate how much they need to pay into their pension and so don’t properly plan for their retirement. Other issues to consider are when you want to retire and how much money you’ll need in your pot to do so.
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