Question 1

How does pension tax relief work in the UK?

Accepted Answer

When you contribute to a pension, the government adds tax relief at your marginal rate. Basic rate relief (20%) is added automatically by your pension provider. If you're a higher (40%) or additional (45%) rate taxpayer, you claim the extra relief through your self-assessment tax return.

Question 2

What is the annual allowance for pensions in 2025/26?

Accepted Answer

The annual allowance is £60,000 for 2025/26. This is the maximum you can contribute to pensions and still receive tax relief. It includes both your personal contributions and employer contributions. Unused allowance can be carried forward from the previous 3 tax years.

Question 3

Are employer pension contributions tax-free?

Accepted Answer

Employer contributions are not taxed as a benefit in kind and are deductible for corporation tax purposes. They also save employer NIC (13.8%) and employee NIC (8%) compared to paying the same amount as salary.

Question 4

What is salary sacrifice for pensions?

Accepted Answer

Salary sacrifice means you agree to reduce your salary in exchange for a higher employer pension contribution. You save employee NIC (8%) and your employer saves employer NIC (13.8%) on the sacrificed amount.

Pension Tax Relief Calculator 2025/26

Frequently asked questions

Related calculators

Salary vs Dividends

Income Tax

Personal Allowance Trap