How does pension tax relief work, and what are the limits?

Pension contributions usually get tax relief at your highest rate of Income Tax, within limits. For 2026/27 the annual allowance is £60,000, the money purchase annual allowance is £10,000 and the most most people can take tax-free is £268,275.

Pension annual allowance: £60,000; Most that can be paid into all your pensions in a tax year before a tax charge. Tax relief is also limited to 100% of your earnings.; HMRC: Pension schemes rates and allowances
Minimum tapered annual allowance: £10,000; For high earners the allowance falls by £1 for every £2 of adjusted income over £260,000 (where threshold income is over £200,000), down to this floor.; HMRC: Pension schemes rates and allowances
Money purchase annual allowance (MPAA): £10,000; Applies once you have flexibly accessed a defined contribution pension, for example by drawing taxable income from it.; HMRC: Pension schemes rates and allowances
Lump sum allowance (tax-free cash): £268,275; Usually up to 25% of a pension can be taken tax-free, capped at this total across all your pensions unless you hold a protected allowance.; HMRC: Pension schemes rates and allowances
Lump sum and death benefit allowance: £1,073,100; Covers tax-free lump sums including serious ill-health lump sums and certain death benefits.; HMRC: Pension schemes rates and allowances

Tax year 2026/27. Checked 22/09/2026.

How tax relief is given

Tax relief means some of the Income Tax you would have paid goes into your pension instead. It is given in one of three ways:

Net pay: your employer takes your contribution before tax, so relief is automatic at your highest rate. People who earn too little to pay Income Tax get no relief this way.
Relief at source: you pay from taxed income and the provider adds 20%. Higher and additional-rate taxpayers claim the rest through Self Assessment or HMRC.
Claiming it yourself: if your scheme does not give relief automatically.

The limit on relief

Relief is available on contributions up to the higher of 100% of your UK taxable earnings or £3,600 a year (including relief). It is available to UK residents under 75, and the pension scheme must be registered with HMRC.

The annual allowance: £60,000

The annual allowance is the most that can be saved into all your pensions in a tax year before a tax charge applies. For 2026/27 it is £60,000. It counts contributions from you, your employer and anyone else, plus tax relief, into defined contribution pensions, and the increase in value of any defined benefit pension.

If you go over, the annual allowance charge is reported on a Self Assessment tax return, even if the pension scheme pays some or all of it.

Carry forward

If you go over the annual allowance, you may be able to use allowance you did not use in the previous three tax years. You can only carry forward from a year in which you were a member of a registered pension scheme.

The tapered annual allowance

For high earners the allowance is reduced if both your “threshold income” is over £200,000 and your “adjusted income” is over £260,000 (these are defined terms that include pension contributions in different ways). The allowance falls by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000.

The money purchase annual allowance: £10,000

Once you “flexibly access” a defined contribution pension, a lower allowance of £10,000 a year applies to further defined contribution savings. HMRC lists the trigger events, which include taking the first income payment from flexi-access drawdown and taking a lump sum from a pot that has not been moved into drawdown (an “uncrystallised funds pension lump sum”).

Under HMRC’s rules, moving money into flexi-access drawdown is not itself a trigger event; the trigger is the first income payment from it.

Tax-free cash: the lump sum allowances

You can usually take up to 25% of a pension as a tax-free lump sum. The most you can take across all your pensions is £268,275 (the lump sum allowance), unless you hold a protected allowance.

A wider limit of £1,073,100 (the lump sum and death benefit allowance) covers tax-free lump sums including serious ill-health lump sums and certain lump sums paid to beneficiaries after death. Anything above these allowances is taxed as income.

The lifetime allowance, which used to limit total pension savings, was abolished on 06/04/2024.

Inheritance Tax from 06/04/2027

From 06/04/2027, most unused pension funds and death benefits will be included in the value of a person’s estate for Inheritance Tax. Death in service benefits paid by a registered pension scheme are excluded. This was legislated in the Finance Act 2026.

Tax treatment depends on individual circumstances and tax rules can change. MoneyHelper offers free guidance, and a regulated financial adviser or tax adviser can look at a particular situation.

Questions people ask

›What is the pension annual allowance for 2026/27?

£60,000 across all your pensions, including employer contributions and tax relief. It can be lower if you are a high earner or have flexibly accessed a defined contribution pension.

›What triggers the money purchase annual allowance?

Flexibly accessing a defined contribution pension, for example taking the first income payment from flexi-access drawdown or taking an uncrystallised funds pension lump sum. After that, £10,000 a year applies to defined contribution savings.

›Can I carry forward unused pension allowance?

Yes, from the previous three tax years, but only from years in which you were a member of a registered pension scheme.

›Is there still a lifetime allowance?

No. It was abolished on 06/04/2024. Tax-free lump sums are now limited by the lump sum allowance (£268,275) and the lump sum and death benefit allowance (£1,073,100).

Related guides

Sources

This is information, not advice. Tax treatment depends on your circumstances and can change. For free, impartial guidance, MoneyHelper (backed by the government) can help; for a personal recommendation, speak to a regulated financial adviser.