How pension tax relief works
Pension tax relief means some of the Income Tax that would otherwise be paid is redirected into pension saving. The way relief appears depends on whether the scheme uses relief at source, net pay or salary sacrifice.
Relief at source and higher-rate relief
With relief at source, a pension provider normally adds basic-rate relief. Higher and additional-rate taxpayers may need to claim any further relief from HMRC where eligible.
Salary sacrifice and annual allowances
Salary sacrifice can reduce gross pay before Income Tax and National Insurance are calculated. Pension annual allowance, tapering and minimum wage rules can limit the available benefit, so larger contributions may need professional advice.