How SIPP Tax Relief Works: Rates, Allowances and Carry Forward

Tax relief on a SIPP adds at least 20% to every personal contribution you make. Your provider claims that basic-rate top-up from HMRC and pays it straight into your pot, so £80 out of your bank account becomes £100 of pension savings. If you pay income tax at 40% or 45%, you can claim a further slice through Self Assessment. The whole thing is capped: relief only applies up to 100% of your UK earnings in the year (or £3,600 if you earn less than that), and total tax-relieved pension saving across all your schemes is limited to the £60,000 annual allowance for 2025/26.

How the 20% Top-Up Reaches Your SIPP

SIPPs use a system HMRC calls relief at source. You contribute from money that has already had income tax deducted, and the provider reclaims basic-rate tax on your behalf and adds it to your pension.¹ The arithmetic is simple: for every £80 you pay in, £20 arrives from HMRC, and you end up with £100 in the pension.

The 20% applies even if you don’t pay income tax at all, as long as your total gross contributions stay within your personal limit for the year. A non-earner or very low earner still gets the government top-up on contributions up to £3,600 gross.¹

This is worth flagging if you also pay into a workplace pension, because many workplace schemes use a different method called net pay. Under net pay, the contribution comes off your gross salary before income tax is calculated, so relief happens automatically through payroll and there is no 20% top-up. For a non-taxpayer, that means no relief at all under net pay, while a SIPP would still deliver the 20%.²

Claiming the Rest If You Pay 40% or 45%

Higher-rate and additional-rate taxpayers only receive the first 20% automatically. The remainder comes through Self Assessment.

If you pay income tax at 40%, your provider has already secured 20% for you and you claim the other 20% on your tax return. An additional-rate taxpayer at 45% claims the outstanding 25% of the gross contribution the same way.¹ The extra relief lands as a reduction in your tax bill or a refund, not as more money in the SIPP. It is not paid automatically. Skip the Self Assessment step and you simply forfeit it.

If You Pay Scottish Rates

Scotland’s income tax bands don’t line up with the rest of the UK, but the mechanics work the same way: your provider still claims 20% regardless of your actual Scottish rate, and any additional relief goes through your return. At the Scottish starter rate of 19% you come out slightly ahead because the provider still claims a full 20%. At the higher rate of 42% you claim the extra 22%, at the advanced rate of 45% you claim 25%, and at the top rate of 48% you claim 28%.¹

How Much You Can Pay In and Still Get Relief

Tax relief on personal contributions is capped at the higher of £3,600 gross or 100% of your relevant UK earnings for the year.³ The £3,600 is the gross figure, meaning your payment plus the 20% top-up combined. Someone with no earnings can pay in £2,880 of their own money and receive £720 of basic-rate relief, taking the total to £3,600.¹

Earn more than £3,600 and your relief ceiling rises to 100% of your UK taxable earnings. Above that, contributions can still be made but they don’t attract relief.

The £60,000 Annual Allowance

The annual allowance is the second, overarching cap. For 2025/26 it is £60,000 and it covers total tax-relieved pension saving across every scheme you belong to in the tax year.³ Everything counts: your personal contributions grossed up to include the basic-rate top-up, any employer contributions, and contributions to other registered pension schemes.⁴

Go over £60,000 and the excess is added to your taxable income and taxed at your marginal rate. Someone in the 40% band who overshoots by £5,000 pays a £2,000 charge, reported through Self Assessment. Where the charge is large enough, you can require the scheme to pay it from your pension fund rather than settling it yourself.⁵

Carry Forward for Larger Contributions

If you want to pay in more than £60,000 in one year without triggering a charge, carry forward lets you use unused annual allowance from the previous three tax years on top of the current year’s allowance.⁶

Three conditions apply. You must have been a member of a registered pension scheme in each year you want to carry forward from. You must use the current year’s £60,000 in full first. And unused allowance from the earliest available year is used first, so what you don’t use eventually drops off.

Unused allowance for a prior year is the difference between the allowance that applied to you then and what you actually contributed. Stack three full years of untouched allowance with the current year and you could pay in up to £240,000 tax-efficiently. Anything above the combined figure is taxed at your marginal rate. Carry forward is often the mechanism people rely on after a bonus, an inheritance, or the sale of a business. Note that the personal earnings limit still applies: you cannot get relief on more than 100% of your earnings in the year the contribution is actually made, no matter how much carry forward you have available.

The Tapered Allowance for High Earners

If your income is high enough, the £60,000 allowance shrinks. The taper cuts your allowance by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000.⁷

Two income tests both have to be breached before any reduction takes effect. The first is threshold income, set at £200,000 for 2025/26 and broadly your net income excluding certain pension-related deductions. If your threshold income sits at £200,000 or below, the taper doesn’t apply, whatever your other income figures look like.⁷

The second is adjusted income, set at £260,000. Adjusted income takes your net income and adds back employer pension contributions, which is what pushes some people over the line when their salary alone wouldn’t.⁷

Working an example: adjusted income of £300,000 is £40,000 over the £260,000 threshold, so your allowance drops by £20,000, leaving £40,000. At £360,000 of adjusted income the reduction hits £50,000, and you land on the £10,000 floor.³ Anyone at £360,000 or above is stuck at £10,000.

Carry forward still works alongside the taper, but the unused allowance for a prior year is based on whatever tapered allowance applied to you then, not the standard £60,000.

The Money Purchase Annual Allowance

A much tighter cap kicks in once you start flexibly drawing income from a defined contribution pension. From that point on, the money purchase annual allowance replaces the standard allowance for all future contributions to money purchase schemes, including your SIPP. The MPAA is £10,000 for 2025/26.³

Triggers include taking income from a flexi-access drawdown fund and receiving an uncrystallised funds pension lump sum, where you draw a chunk of the pot as a mix of tax-free cash and taxable income in one go.⁸ The point of the MPAA is to stop people withdrawing pension money and immediately recycling it back in to claim fresh relief.

Not every access route triggers it. Taking just your 25% tax-free lump sum on its own does not, nor does buying a lifetime annuity or taking a small pot lump sum. The dividing line HMRC draws is between fixed, guaranteed income (safe) and flexible, variable withdrawals (trigger).

Once triggered, the MPAA is permanent. You lose the ability to carry forward unused allowance for money purchase contributions, and £10,000 is the ceiling every year from then on. You also have to notify any other pension scheme you actively pay into within 91 days of receiving your flexible access statement.⁹

Employer Contributions and Salary Sacrifice

Employer contributions into a SIPP work on a different footing. There is no 20% top-up because none is needed: the employer treats the contribution as a business expense and saves corporation tax on the amount paid in.¹⁰ HMRC expects the contribution to be a reasonable part of the employee’s overall remuneration; anything that looks more like profit extraction can be challenged.

From your side, employer contributions are highly tax-efficient. They aren’t a taxable benefit, so no income tax and no National Insurance are due on the amount going in. A pay rise of the same size would lose a slice to both before you could invest it.

Salary sacrifice extends the logic. You agree to give up part of your gross salary and your employer pays that amount into the pension instead. Because the sacrificed pay never counts as your earnings, neither of you pays NI on it. Some employers pass their NI saving into your pension too. The trade-off is a lower contractual salary, which can affect mortgage applications, statutory maternity pay, and other earnings-linked entitlements, and the sacrifice cannot take your pay below the National Minimum Wage.

One warning if you are near the taper zone: employer contributions count in full toward your £60,000 annual allowance alongside your grossed-up personal contributions, and they also feed into the adjusted income calculation for the tapered allowance.⁴⁷ A generous employer contribution can push you across the £260,000 adjusted income line and shrink your available allowance by more than the contribution saves you in tax. Coordinate before agreeing large amounts.