Tax relief on SIPPs: Allowances and key rules explained

The UK government realises that a state pension alone may not be enough to support a comfortable retirement. So, the government gives tax relief on SIPP contributions to encourage people to save for their retirement. This is called relief at source, as it’s boosted straight away.

The amount you can get on your pension contributions depends on how much you earn and your income tax rate.

Everyone gets 20% tax relief on their eligible contributions. This means that for every £80 you put into your pension, the government will throw in another £20, bringing the total contribution to £100.

But if you pay tax at the higher or additional rate you may be able to claim more through your self-assessment. This relief doesn’t go into your SIPP automatically, it needs to be claimed manually. The tax relief you get depends on your personal circumstances.

As you’re getting tax relief on your contributions, the government does restrict how much can be paid into your pensions each tax year. This is called the ‘annual allowance’, which is currently £60,000. This limit includes all contributions made into your pensions, your own payments, any tax relief added, and contributions from your employer, and applies across all the pension schemes you hold. So, if you have a SIPP and a workplace pension, the total contributions across both must not exceed £60,000 in a tax year.

If you're a high earner your annual allowance will go down gradually to as little as £10,000 if your income is over £200,000. This is called the tapered annual allowance.

If you go over this allowance, you may have to pay a tax charge.

The government can change the limit at any time, so keep an eye on those budget announcements.

Carry forward allows you to use any unused allowance from the previous three tax years, and pay it into your SIPP or other pensions, without paying a tax charge.

There are a few rules to be able to use it:

• you must have used all of your annual allowance in the tax year you want to carry forward in.
• you must have been a member of a UK-registered pension scheme in each of the tax years that you want to carry forward.
• you can only go back three years and use an allowance once.
• If you’ve got a tapered annual allowance, then you measure your unused annual allowance against the tapered allowance. This only affects high earners with a net income over £200,000.
• If you've triggered the Money Purchase Annual Allowance, you can't use carry forward to support contributions to defined contribution pension schemes, including SIPPs - see below for more details.

If you've taken flexible benefits from your SIPP or any other defined contribution (money purchase) pension as either a taxable lump sum or income drawdown, your annual allowance decreases. This is called the money purchase annual allowance (MPAA) and is currently at £10,000.

If you’re not earning, you’re not paying tax. But you can still make pension contributions up to £3,600 a year, which includes 20% tax relief. You can also pay the same amount into a pension for a child, giving them a leg up with their finances.

The lump sum allowance is how much you can be paid from all your pensions tax-free during your lifetime and in 2026/2027 it’s £268,275. The lump sum and death benefit allowance is the tax-free limit for payments during your lifetime and on death – it’s currently £1,073,100. UK Income Tax is payable on any benefits taken above these limits.

Don’t forget:

A few things to bear in mind before you move forward with saving in a SIPP:

• You can’t access money paid into a pension before you reach 55 (57 from 6 April 2028 unless you have a protected pension age).
• You might pay UK Income Tax on 75% of the money withdrawn from a pension.
• If you don’t earn an income, you can still save up to £3,600 into a pension each year (you pay £2,880 with the government topping up a further £720).
• There's no maximum age limit for a pension, but you claim tax relief on your contributions.  Some SIPPs, including Aviva's, won't accept personal contributions unless they qualify for tax relief.
• If you're not sure, its always a good idea to speak to a financial adviser. We at Aviva, offer financial advice you can find out more here. You may have to pay for this advice.
• If you don't have a financial adviser, you can get help with finding one at MoneyHelper.