Pensions and Tax Relief / Lesson 7 of 8
Pensions as a threshold lever
Between £100,000 and £125,140 the effective rate is 60%. A pension contribution is the way out.
The short answer
- ✓ Between £100,000 and the point the allowance disappears, the effective rate is about 60%
- ✓ A pension contribution reduces the income the taper is measured against
- ✓ It also reduces the income used for the High Income Child Benefit Charge
- ✓ One contribution can trigger several reliefs at once, and nothing adds them up for you
The 60% trap
Above £100,000 your personal allowance is withdrawn by £1 for every £2 of income. You lose allowance and pay higher rate on the income at the same time, producing an effective marginal rate far above the headline 40%.
£1,000 of extra income above £100,000
Tax on the £1,000 at 40% £400
Personal allowance lost £500
Tax on that £500 now exposed at 40% £200
-------
Total tax on £1,000 of income £600
An effective rate of 60%.A contribution here is unusually effective
A pension contribution reduces the income the taper is measured against, so it recovers personal allowance as well as relieving tax.
Income before £110,000
Personal allowance already lost £5,000
Gross contribution £10,000
Income for taper purposes £100,000
Personal allowance fully restored
Effective relief on that contribution 60%
The contribution costs about £4,000 net.The Child Benefit charge
Where a household claims Child Benefit and one partner's income exceeds the charge threshold, a tax charge claws the benefit back, rising to 100% at the upper end. Pension contributions reduce the income used for that test too.
A family with several children can find a contribution relieves income tax and cancels the charge at once, giving an effective rate well beyond even 60%.
Other thresholds a contribution moves you under
| Threshold | Effect of contributing |
|---|---|
| Personal allowance taper at £100,000 | Recovers allowance, ~60% effective relief |
| High Income Child Benefit Charge | Reduces or cancels the charge |
| Higher rate threshold | Extends the basic rate band |
| Capital gains rate boundary | More gain taxed at the lower rate |
| Personal savings allowance | Can restore the larger basic-rate allowance |
The bit HMRC does not spell out
One contribution can trigger several of these at once, and the combined effect is much larger than any single calculation suggests. Someone at £110,000 with two children who contributes to restore their personal allowance may also cancel the Child Benefit charge and recover part of their savings allowance from the same payment.
Nothing tells you this is happening. The reliefs are administered separately and no statement adds them up.
General tax information, not financial advice. Money in a pension is not accessible until pension age, and that trade-off is yours to weigh.
Common mistakes
- Not knowing the taper band exists. Many people inside it never realise.
- Missing the Child Benefit interaction. Often the larger effect for families.
- Forgetting relief at source needs claiming. The extra relief is not automatic.
- Ignoring that the money is locked away. The relief is not free money.
Income inside the 60% band
Where the tax actually comes from
National Insurance, student loan and pension contributions are left out here on purpose, so you can see income tax on its own. The calculator below includes them.
Try it on your own numbers
This is the same calculator as the full tool page, using 2026/27 rates.
Your income (2026/27)
See your effective tax rate in the trap and how a pension contribution claws back your allowance.
Your effective rate on the next £1
You're in the 60% trap.
Tax saved by your contribution
A pension contribution effectively costs you .
- Personal Allowance now
- Personal Allowance after
- Allowance restored
- In your pension
- Effective relief rate
Estimate only. Assumes the contribution is within your annual allowance (£60,000) and you have relevant earnings. Pension access rules apply.
Related
Key takeaways
- ✓ Between £100,000 and the point the allowance disappears, the effective rate is about 60%
- ✓ A pension contribution reduces the income the taper is measured against
- ✓ It also reduces the income used for the High Income Child Benefit Charge
- ✓ One contribution can trigger several reliefs at once, and nothing adds them up for you
Check you have got it
3 quick questions. No score is kept, and you can change your mind.
1. Why is the effective tax rate about 60% above {tax:income_tax.pa_taper_start}?
2. What does a pension contribution do to the personal allowance taper?
3. A family with three children is just over the Child Benefit charge threshold. What can a pension contribution do?
Sources
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