How to calculate pension tax relief
Tax relief means a pension contribution costs you less than it adds to your pot. The government tops up your contribution at your marginal rate, so a higher-rate taxpayer can add a pound to their pension for a fraction of that from take-home pay.
The rule
Net cost = gross contribution × (1 − your marginal tax rate)
Do it automatically — Pension tax reliefStep by step
- 1Decide the gross amount you want to land in the pension.
- 2Find your marginal rate — the rate on the top slice of your income.
- 3Multiply the gross contribution by one minus that rate to get the real cost to your take-home pay.
- 4Check whether the contribution pulls your income below a threshold, which can increase the effective relief sharply.
What trips people up
- • Higher-rate relief often has to be claimed through a tax return under relief-at-source schemes.
- • Annual and lifetime allowance limits cap how much can be contributed tax-efficiently.
Common questions
Salary sacrifice or personal contribution?
Salary sacrifice also saves social contributions, so it is usually the more efficient route.
Can I carry forward unused allowance?
In many cases yes, for a limited number of previous years if you were a scheme member.
Skip the maths
See the tax relief added by the government and the net cost from your take-home.
Open the the real cost of a contribution tool