Take a higher-rate taxpayer paying £15,000 into a pension in 2026/27 with adjusted income of £100,000 and a 40 percent marginal rate. Because £100,000 is below the £260,000 taper threshold, the full £60,000 Annual Allowance applies, so the whole £15,000 is eligible for relief. Tax relief is £15,000 times 40 percent, which is £6,000. That means the £15,000 in the pension only costs them £9,000 out of pocket, because a basic-rate taxpayer would get 20 percent relief and a higher-rate taxpayer effectively reclaims the extra 20 percent through their tax return or code.
How it is calculated
Pension tax relief refunds tax at your marginal rate on contributions, up to the Annual Allowance. The calculator first fixes your allowance, which is £60,000 for 2026/27 but tapers by £1 for every £2 of adjusted income above £260,000, down to a £10,000 floor. Adjusted income includes employer contributions, which is why high earners can be caught unexpectedly. It then takes the smaller of your contribution and your allowance as the amount eligible for relief, and multiplies that by your marginal rate. Net cost is the gross contribution minus the relief. Basic-rate relief is usually given at source, while higher and additional-rate taxpayers claim the extra through self assessment or an adjusted tax code.
Frequently asked questions
What is the tapered Annual Allowance?
For high earners with adjusted income above £260,000, the £60K allowance tapers by £1 for every £2 of excess income, down to a minimum of £10,000. Adjusted income includes employer pension contributions.
How is pension tax relief given in the UK?
Most personal pensions use relief at source, where your provider claims basic-rate relief (20%) from HMRC and adds it to your pot automatically. Higher and additional-rate taxpayers must claim the extra relief through a self assessment tax return or by contacting HMRC to adjust their tax code. Workplace salary-sacrifice schemes work differently: contributions come out of your gross pay before tax, so the full marginal rate relief is applied immediately.
Does employer pension contributions count toward the Annual Allowance?
Yes, employer contributions count toward the Annual Allowance alongside your own contributions. The £60,000 limit for 2026/27 covers the total of all contributions paid into your defined contribution pension in a tax year. If you are in a defined benefit scheme, the pension input amount is calculated using a different formula based on the growth in your accrued benefits.
Can I carry forward unused Annual Allowance from previous years?
You can carry forward unused Annual Allowance from the three preceding tax years, provided you were a member of a registered pension scheme in those years. This lets you make larger contributions in a single year without triggering an Annual Allowance charge. You must use the current year's full allowance first before drawing on carried-forward amounts, and the carry-forward does not apply to the tapered allowance in certain high-income scenarios.