How much tax relief (tax top-up) you receive from the government, is dependent on what tax bracket you are on. However, the money you contribute into your pension will automatically receive a 25% tax top up contribution from the government. 

If you are a basic-rate taxpayer, you will receive this 25% tax top up contribution from the government only.

For example, if a basic-rate taxpayer makes a £1000 contribution into their pension, they will receive a £250 tax top up contribution from the government back into their pension. 

If you are a higher-rate taxpayer, you can claim an additional 41% tax top up contribution from the government, as part of your annual tax return. This means you receive a total 66% tax top up contribution. 

For example, if a higher-rate taxpayer makes a £1000 contribution into their pension, they will receive a £250 tax top up contribution from the government back into their pension. 

On top of this, once this taxpayer has submitted their tax return, they will receive an additional £410 as tax relief from the government back into their personal bank account. This means that a higher-rate taxpayer has received a total £660 tax top up contribution from the government, which is 66% of their £1000 pension contribution.

Where do these numbers come from?

Tax relief is calculated on your pre-tax earnings. Therefore, when a basic rate taxpayer invests £80 of their take-home pay into their pension, they would have actually earned £100 before tax. This is why the government would add a £20 contribution. Here, the tax relief is 20% of the £100 ie: £20. But of course, £20 is 25% of £80. This is why we say basic rate taxpayers get an additional 25% tax top up contribution, and high rate taxpayers get an additional 66% tax top up contribution from the government. 

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