This guide is for financial advisers only. It must not be distributed to, or relied on by, customers. The information on this page is based on our understanding of legislation as at May 2023.

There’s no limit on how much can be paid into UK registered pension schemes for an individual – but there are tax thresholds:

  • tax relief – there’s a limit on the amount of personal contributions an individual or third party can make that benefit from tax relief.
  • annual allowance – if total personal, third party and employer contributions exceed the annual allowance, tapered annual allowance or money purchase annual allowance for a tax year this may incur an annual allowance tax charge.

Individuals can be members of and contribute to more than one pension scheme at the same time, but the above thresholds need to be considered when deciding on how much they can pay to each one.

Personal contributions are contributions paid by a scheme member or by a third party on their behalf. The third party can be an individual, a corporate body or other legal entity but not the employer. Contributions paid by a third-party count towards a member’s tax relievable limits. This means the member will receive any tax relief due on the contribution made, not the third party making it. So, if the member is a higher rate taxpayer, then they will be able to claim higher rate tax relief on any third-party contributions made.

The following payment types count as personal contributions:

  • monetary amounts paid by an individual or a third party (other than the employer).
  • compensation payments (usually paid by a provider or financial adviser following a complaint relating to poor advice, mis-selling, poor administration or poor performance of an investment).
  • in-specie contributions (non-monetary assets) made by an individual or a third party where the legal ownership of an asset such as shares or property are transferred from the individual or third party as a net contribution into a pension scheme.
  • pension credit rights from a non-registered pension scheme.
  • shares from Save as you Earn (SAYE) share option schemes and share incentive schemes transferred to a scheme within specified timescales.


The following payment types don’t count as personal contributions:

  • employer contributions
  • transfers from another registered pension scheme
  • pension credit rights from a registered pension scheme.

To qualify for tax relief on personal contributions, a person must, in the tax year the contribution is paid, be:

  • an active member of a registered pension scheme, and
  • a relevant UK individual.

An active member is a member of a registered pension scheme, where benefits are accruing for that member under one or more arrangements in that scheme.

A relevant UK individual is someone who, in the tax year, meets any one of the following conditions:

  • has relevant UK earnings chargeable to income tax in the year.
  • is resident in the UK at some point in the year.
  • was resident in the UK both at some point in the previous five tax years and at the point they joined the scheme, or
  • has, or their spouse has, general earnings from overseas Crown employment subject to UK tax.

For personal contributions, any contribution made by an individual or by a third party on their behalf where the member is under age 75 should be eligible for tax relief providing the gross amount of the contribution is within the tax relief limits.

Conversely, any personal contribution made by or on behalf of an individual aged 75 or over is not eligible for tax relief. 

The maximum gross personal contribution a person under age 75 can receive tax relief on is the greater of:

  • the "basic amount" of £3,600, and
  • 100% of relevant UK earnings

It’s worth being aware that many pension providers won’t accept contributions that aren’t eligible for tax relief. If an individual under age 75 inadvertently pays a contribution that isn’t eligible for tax relief (for example they pay more than 100% of their relevant UK earnings for the tax year) they have up to six years to ask the provider for a refund of the excess contribution. There is no right to a refund – whether or not it is given will depend on the rules of the particular scheme.

The definition of relevant UK earnings can be found at:

Also - look at the section titled ‘Earnings that attract tax relief’. 

An investment company is a company that mainly obtains their income from investments (for example, from property). If a controlling director has no contract of employment and is not providing any additional services to the investment company, our understanding is that personal contributions would be limited to £3,600 gross each year on the assumption that their investment income is not classed as relevant UK earnings.

Conversely, if a controlling director does have a contract of employment and is providing additional services to the investment company, then the rate of remuneration specified in the contract for these services could be classed as relevant UK earnings. So, personal contributions could be based on the higher of 100% of relevant UK earnings or £3,600 gross each year.

A Scottish taxpayer has the prefix ‘S’ at the start of their PAYE tax code whereas a Welsh taxpayer has the prefix ‘C’. HMRC has information online explaining how they determine whether a person is a Scottish or Welsh taxpayer. 

Pension providers operating relief at source schemes should have systems in place to be able to identify Scottish and Welsh taxpayers based on information provided by HMRC. Scheme administrators need to use this identifier to collect the correct amount of basic rate tax relief from HMRC for any personal or third-party contributions paid. In practice, this will happen through pension scheme members in relief at source schemes receiving tax relief on their contributions based on their ‘residency tax status’. This status will be identified through an exchange of information between HMRC and scheme administrators. HMRC’s report will show for each scheme member either:

  • an S for Scottish residency status
  • a C for Welsh residency status
  • a U for unmatched individuals
  • a blank field for rest of the UK (resident in England and Northern Ireland)

Further information on this exchange of information can be found at:

Tax relief on personal contributions can generally be given in one of three ways. These are net pay, relief by claim and relief at source. Please note in the text below, the term UK is used to refer to English, Northern Irish and Welsh rates or taxpayers.

Net pay

For a scheme operating under the net pay arrangement, the employer deducts the gross contribution from an employee’s pay before operating Pay As You Earn (PAYE) – in this way the employee gets tax relief immediately at the highest marginal rate whether that is at UK or Scottish rates. The net pay arrangement can only be operated in respect of members of an occupational pension scheme. 

On a net pay basis, because contributions are deducted from pay, tax relief will only actually be available up to the level of the employee’s earnings, even if these are less than £3,600. For example, if earnings are £3,000, this will be the maximum gross amount that tax relief will be available on. Tax relief on personal contributions made to a scheme operating the net pay arrangement outside of the employer’s payroll or by a third party can’t be given under net pay. If such a contribution is made, the scheme member must claim any relief due via self-assessment.

If an employee does not pay income tax, for example because their earnings are below their personal allowance, they will not receive any tax relief under the net pay arrangement. However, the government have confirmed that they will be introducing a system of ‘top-up’ payments to low earners in net pay arrangements in respect of personal contributions made from 2024/25 onwards.

Typically, occupational pension schemes accept personal contributions using the net pay method.

As an example, assume an employee’s gross monthly salary is £2,000. If this was all subject to 20% basic rate tax, the amount of income tax payable would be £400. If the same employee made a £200 gross monthly pension contribution to an occupational pension scheme this would be deducted from their gross pay. This would leave £1,800 subject to 20% basic rate income tax, equating to £360.

The difference in income tax of £40 (£400 less £360) is the 20% basic rate tax relief on the gross pension contribution of £200.

The calculation of National Insurance Contributions (NICs) is unaffected by the operation of the net pay arrangement with NICs being calculated against the individual’s full gross earnings before the deduction of any pension contributions.

Relief by claim

For the relief by claim method, the contribution is paid gross and tax relief is claimed through self-assessment.

Typically, retirement annuity contracts accept personal and third-party contributions using this method. HMRC guidance does allow retirement annuity contracts to accept contributions using the relief at source method but a provider would need to allow this in practice.

If an individual’s earnings are below £3,600pa and they have a retirement annuity contract to which they make gross contributions, they will only be able to claim tax relief on up to 100% of their earnings. If an individual has no earnings, then they will be unable to claim tax relief on any pension contributions they make.

Relief at source

Under a scheme operating relief at source, personal contributions are paid net of basic rate tax. The scheme administrator claims the tax relief due from HMRC and applies it to the member’s arrangement.

Typically, personal pension and stakeholder arrangements accept personal and third-party contributions using the relief at source method. Where personal contributions are deducted from earnings by the employer, the net contribution is collected from pay after income tax is deducted. This is important, otherwise the personal contributions will receive tax relief twice. So, this is different from the net pay method used for occupational pension schemes.

Here’s a comparison of both methods for a ‘rest of the UK’ taxpayer assuming they are an employee earning £2,000 gross per month, making a £200 gross contribution and all their income is subject to 20% basic rate tax.

Net pay method (OPS)

Relief at source method (PP)

Gross salary


Gross salary


Less gross personal contribution


Amount subject to tax


Amount subject to tax


Less income tax


Less income tax


Less net pension contribution


Net income


Net income


In both cases, £200 gross is invested in the pension arrangement. 

In addition to the limit on tax relief for personal contributions, there is also a test against the:

We have a separate guide on these allowances where you can find out more information.

When making a decision about how much to pay as a personal contribution to a money purchase arrangement, an individual has to be aware of how the annual allowance and tax relief limits interact. For example, if an individual has relevant UK earnings of more than the standard annual allowance and pays a gross personal contribution equal to their relevant UK earnings, they will receive tax relief on the full contribution. However, an annual allowance charge may apply to the amount of the contribution that exceeds the annual allowance if there is no unused annual allowance available to carry forward from the previous three years. 

Further information on personal contributions can be found in HMRC guidance at: