How to get at least 60% tax relief on pension contributions

How to get 60% tax relief (UK, excluding Scotland)

The personal allowance is reduced by £1 for every £2 of income above £100,000. This means that when income is £125,140 or more, the personal allowance will be nil. The effective tax rate for income between £100,000 and £125,140 is 60%.

This is the case because in addition to paying 40% tax on any income above £100,000, there's the impact of losing some or all of the personal allowance and paying 40% tax on that income too. 

The 'income' used by HM Revenue & Customs to calculate the charge is 'adjusted net income' (opens in a new window).

Any pension contributions made by an individual, whether to an occupational pension scheme or to a personal pension, will reduce the final amount of adjusted net income. 

Where salary sacrifice is used the effective rate of tax relief is increased to 67%.

The rates used in the following examples are based on UK income tax rates and bands, excluding Scotland, for tax year 2024/25.

The example below shows the difference a personal pension contribution of £25,140 can make for somebody with income of £125,140.

We’ve used an employer National Insurance rate of 13.8% on earnings over £9,100 and an employee rate of National Insurance of 8% on earnings between £12,570 and £50,270. We’ve also used an employee rate of National Insurance of 2% above £50,270.

How the numbers work

A pension contribution of £25,140 (including the higher rate tax relief) only results in a reduction to income after tax of £10,056. The difference is £15,084, giving an effective tax relief rate of 60% [£15,084/£25,140 = 60%].

Note that the pension contribution of £25,140 extends the amount of income subject to basic rate tax by this amount. So, £62,840 [£37,700 plus £25,140] is subject to basic rate tax, with the balance of taxable income of £49,730 subject to higher rate tax.

This effective tax relief rate is available to all clients with income between £100,000 and £125,140.

The example below shows the additional saving that can be made by using salary sacrifice.

How the numbers work

By using salary sacrifice, the employer pension contribution is £28,609.32 (employer National Insurance saving of £3,469.32 plus salary sacrifice of £25,140). Income has reduced by £9,553.20 The difference is £19,056.12, giving an effective tax relief rate of 67% (£19,056.12/£28,609.32 = 66.61%).

The figures are based on UK income tax and National Insurance rates, excluding Scotland, for tax year 2024/25.

The salary sacrifice figures assume that the employer has passed the savings they've made in reduced National Insurance contributions on to the employee, by making a higher pension contribution.

The figures shown are for illustration purposes only.

Example for somebody who lives in Scotland

Because different tax bands and rates apply in Scotland the effective rate is different.

How the numbers work

A pension contribution of £25,140 (including the higher tax relief) only results in a reduction to income after tax of £8,170.50. The difference is £16,969.50, giving an effective tax relief rate of 67.5% [£16,969.50/£25,140 = 67.5%].

Note that the pension contribution of £25,140 extends the amount of income subject to basic rate tax by this amount. So, £36,825 [£11,685 plus £25,140] is subject to basic rate tax, with the balance of taxable income subject to starter, intermediate and higher rate tax.

This effective tax relief rate is available to all clients with income between £100,000 and £125,140.

The example below shows the additional saving that can be made by using salary sacrifice.

How the numbers work

By using salary sacrifice, the employer pension contribution is £28,609.32 (employer National Insurance saving of £3,469.32 plus salary sacrifice of £25,140). Income has reduced by £7,667.70. The difference is £20,941.62, giving an effective tax relief rate of 73% [£20,941.62/£28,609.32 = 73.2%].

Because different tax bands and rates apply in England, Northern Ireland and Wales the effective of tax relief is different, see How to get 60% tax relief on pension contributions for more information.

The figures are based on Scottish income tax and National Insurance rates for tax year 2024/25.

Note

The salary sacrifice figures assume that the employer has passed the savings they've made in reduced National Insurance contributions on to the employee, by making a higher pension contribution.

The figures shown are for illustration purposes only.