Industry News - 26th August 2026
When it comes to planning for your future, pensions help you save for retirement and can also be a very tax-efficient way to put money aside.
The government offers tax relief on certain pension contributions. This means money that would have gone to Income Tax can be added to your pension or used to reduce your tax bill.
If you are a business owner, company director, or higher-rate taxpayer, pension contributions can play an important role in your tax planning. The rules can be complex, and the amount you can contribute tax-efficiently depends on your income, pension type, and personal circumstances.
🧐 How Does Pension Tax Relief Work?
Some workplace pensions take your contribution from your pay before Income Tax is calculated. This is known as a “net pay” arrangement, and the tax relief is applied automatically.
Personal pensions, stakeholder pensions, and some workplace pensions usually use “relief at source.” In this case, your pension provider claims 20% basic-rate tax relief from the government and adds it to your pension.
For example, if you pay £800 into a relief-at-source pension, your provider can usually claim an extra £200. This means your total contribution becomes £1,000.
If you pay Income Tax at a rate higher than 20%, you might be able to claim extra relief on your contributions. Most people do this through their Self Assessment tax return, but if you do not complete a return, you may be able to claim directly from HMRC.
It’s wise to check how your pension works, as extra tax relief is not always given automatically.
💵 How Much Can You Contribute?
You can usually get tax relief on private pension contributions up to 100% of your relevant UK earnings for the tax year.
There is also a pension annual allowance. For this tax year, the standard allowance is £60,000. This covers all your private pensions and includes contributions from you, your employer, or anyone else. For defined benefit pensions, it also counts the increase in your benefits’ value. The annual allowance and the earnings limit are separate rules. Having a £60,000 annual allowance does not always mean you can make a £60,000 personal contribution and get tax relief on the full amount.
Your allowance might be lower if you have a high income or have already flexibly accessed a defined contribution pension. If you go over your allowance, you could face a tax charge.
📋 Can You Use Unused Pension Allowances From Previous Years?
If you haven’t used your full annual allowance, you can usually carry forward unused amounts from the previous three tax years.
This allows you to make a larger pension contribution without exceeding your annual allowance. It can be useful after a profitable year or when you want to boost your retirement savings.
However, carry forward has specific rules. You usually need to have been a member of a registered pension scheme in the year you want to carry allowance forward from.
Carry forward increases your annual allowance, but it does not automatically allow you to get tax relief on personal contributions above your relevant earnings.
Before making a large contribution, check your allowance and see if any reduced or tapered allowance rules apply.
💷 What If You Do Not Have Any Earnings?
You might still get tax relief on a small pension contribution even if you do not work or pay Income Tax. People with no earnings can usually pay up to £2,880 into a relief-at-source pension each tax year. The pension provider can then claim £720 in basic-rate tax relief, bringing the total pension contribution to £3,600.
This can be helpful if you are setting up a pension for a non-working spouse, partner, or family member.
🏢 Pension Contributions for Limited Company Directors
If you are a limited company director, your company may be able to contribute directly to your pension. These contributions may qualify as a business expense for Corporation Tax purposes, provided the relevant rules are met.
Your salary does not restrict employer contributions in the same way as personal contributions, although the pension annual allowance still applies.
Planning ahead gives you time to check:
- How much has already been contributed.
- Whether you have any unused allowance.
- Whether a personal or company contribution is more suitable.
- How the contribution would affect business cash flow.
Pensions are a long-term commitment, so contributions should not be made for the tax benefit alone. The right approach will depend on your personal circumstances and the needs of your business.
💡The Perrigo Perspective
Paying into a pension could help you put money aside for later in life and may also reduce the tax you pay now. How much you should contribute, and whether the payment should come from you or your business, will depend on your own circumstances.
If you wait until the end of the tax year to plan your pension, your options may be limited. Reviewing your situation regularly helps you find unused allowances, make sure you get all available tax relief, and decide if more contributions are right for you.
If you are a business owner or director, consider pension planning alongside salary, dividends, Corporation Tax, cash flow, and your business’s other needs. will depend on your personal circumstances and the needs of your business.
📞 Need help reviewing the tax position?
If you would like to understand how pension contributions could fit into your wider tax planning, the Perrigo Consultants team is here to help.
We can review the tax implications of personal and employer contributions and help you understand the allowances that may apply to your circumstances. Where regulated pension or investment advice is required, you should also speak to an appropriately authorised financial adviser.
Give us a call on 01299 488860, book a discovery call, or join us at our next Drop-In Session to speak with the team.
Internet link: Tax on your private pension contributions
