Pension Tax Relief Method 2026/27: Rules, Order and Tests

1. Income Tax, twice

Relief is never applied as a flat percentage. The engine works out your whole Income Tax for 2026/27 without the contribution and again with it, and shows the difference. That catches every threshold a contribution crosses: the end of the higher rate band, the Personal Allowance taper, a Scottish band boundary.

Personal Allowance: £12,570, reduced by £1 for every £2 of adjusted net income above £100,000, nil at £125,140.
Rest of the UK: basic rate 20% on the first £37,700 of taxable income, higher rate 40% up to £125,140, additional rate 45% above.
Scotland: starter 19% on the first £3,967 of taxable income, basic 20% to £16,956, intermediate 21% to £31,092, higher 42% to £62,430, advanced 45% to £125,140, top 48% above. These are the GOV.UK income bands converted to taxable income; the tests check the published thresholds of £43,663 and £75,001.

2. The three methods

Relief at source: the amount you pay is grossed up by 20%; the provider's top-up is 20% of the gross amount within the relief limit. The extra relief is the tax saved by extending the basic rate band (and, in Scotland, every band except the starter band) by the gross contribution. A Scottish starter rate taxpayer keeps the 20%.
Net pay: the contribution is deducted from taxable pay. If taxable pay is nil afterwards, the HMRC top-up of 20% for low earners is added, as paid since 2024/25.
Salary sacrifice: salary is reduced; Income Tax and Class 1 NI are recomputed on the lower figure, for the employee (8% from £12,570 to £50,270, 2% above) and for the employer (15% above £5,000). From 6 April 2029, the NI exemption applies to the first £2,000 of sacrifice only, as announced; the exempt part is taken as the top slice of pay.

Relief is limited to the greater of earnings and £3,600 gross (Finance Act 2004, section 190). Above it, the engine shows the excess and gives it no relief.

3. Allowances

Annual allowance: £60,000; tapered by half of adjusted income above £260,000 if threshold income exceeds £200,000, floor £10,000. Threshold income deducts relief at source contributions and adds back salary sacrificed; adjusted income adds employer contributions and net pay contributions back. Earlier years use the figures of HMRC's pension schemes rates page.
Charge: the excess over the allowance and any carry forward is added to income and taxed at your rates.
MPAA: £10,000 for defined contribution savings after flexible access; the charge is on the larger of the two excesses; carry forward does not apply to it.
Carry forward: this year's allowance first, then the earliest of the three previous years; a year without scheme membership gives nothing.

4. Child Benefit, cars, projections

Child Benefit charge: 1% of the year's benefit (£1,407 for the eldest, £931 for each other child) per £200 of adjusted net income above £60,000, rounded down.
Company cars: list price times the appropriate percentage of ITEPA 2003 section 139 for the year, rounded down; tax is the difference in Income Tax with and without the benefit, after the sacrifice. Class 1A at 15% for the employer.
Pot and drawdown: real return = (1 + growth − charges) ÷ (1 + inflation) − 1, applied monthly to contributions and yearly to withdrawals, in today's money. These are illustrations with assumptions you choose, not forecasts.

5. Tests

The test suite runs before every build, and a failure stops it. It includes GOV.UK's own example: earnings of £60,270 and £12,000 gross paid by relief at source give extra relief on £10,000 only; the engine gives a top-up of £2,400 and a claim of £2,000. It checks the Scottish extra relief of 1%, 22%, 25% and 28% (on £60,000, £800 paid gives a claim of £220); the net pay top-up below the allowance (£200 on £1,000 at £11,000); 60% relief at £110,000; the taper at both ends; the MPAA; carry forward order (£40,000 used from 2023/24 in the example, £30,000 carried on); the appropriate percentages for each year; and a £40,000 electric car on £60,000, where the company car tax is £640 a year. Editorial tests check the length of every page, the FAQ and the links.

6. What is left out

Savings and dividend income, Gift Aid, the Marriage Allowance, the Blind Person's Allowance and student loans.
Payroll timing: everything is a whole-year figure. A payroll that works month by month, or a bonus in one period, can give slightly different NI.
Defined benefit accrual, which is entered as a pension input amount by the user.
The detailed rules of the April 2029 cap, which are not published yet; the engine applies the cap to the year as a whole.
Rates for 2027/28 and later years, except the company car percentages already in law. The 2030/31 car rates announced in Budget 2026 are quoted, not used.

7. Sources

The parameter file cites 29 official pages, all read on 7 November 2026. Text is written by us; figures come from these pages, which are Crown copyright and reused under the Open Government Licence v3.0.

Errors: see the editorial policy and the contact page.

Tax year 2026/27 (6 April 2026 to 5 April 2027), last updated 7 November 2026. Estimate from the rules in force on the date shown. Not financial advice, and not a decision of HMRC or of your pension scheme.