Pension Tax Relief Explained: How Much Free Money Do You Get?
When you contribute to a pension, the UK government adds tax relief at your marginal income tax rate. For a basic-rate taxpayer, a £100 contribution only costs £80 — the pension provider claims the other £20 from HMRC automatically. Higher-rate and additional-rate taxpayers can claim back an extra 20% or 25% through Self Assessment.
The Annual Allowance for 2024-25 is £60,000 (or 100% of earnings, whichever is lower). If you did not use your full allowance in the previous three tax years, you can carry forward unused amounts — potentially contributing over £200,000 in a single year.
For high earners, the tapered annual allowance reduces the limit by £1 for every £2 of adjusted income over £260,000, down to a minimum of £10,000. The separate Lifetime Allowance was abolished in April 2024, but the tax-free lump sum is capped at £268,275 (25% of the old £1,073,100 LTA).
Frequently Asked Questions
Do I get tax relief automatically?
If your pension operates on a relief-at-source basis (most personal pensions and SIPPs), basic-rate relief is added automatically. Higher-rate relief must be claimed through Self Assessment.
What is carry forward?
If you did not use your full annual allowance in the previous three tax years, you can use the unused amount this year. You must have been a member of a registered pension scheme in those years.
Is there a lifetime limit?
The Lifetime Allowance was abolished in April 2024. However, the tax-free lump sum is capped at £268,275 unless you have transitional protection.
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