Tax relief on your own pension contributions is capped each tax year at the greater of £3,600 gross or your relevant UK earnings chargeable to income tax. Relevant UK earnings means employment income, self employed trading profits and certain patent income of the inventor. Rental profits, dividends, savings interest and pensions are not earnings for this purpose, so someone living on those sources can only get relief on £3,600 a year.

Who can get tax relief on pension contributions at all?

Section 188 of the Finance Act 2004 gives relief on “relievable pension contributions” paid to a registered pension scheme. HMRC’s manual at PTM044100 says the person must, in the tax year the contribution is paid, be an active member of a registered pension scheme and a “relevant UK individual”. Under section 189(1) a relevant UK individual is someone who:

  • has relevant UK earnings chargeable to income tax for the year
  • is resident in the UK at some time during the year
  • was resident in the UK at some time in the five previous tax years and when they joined the scheme, or
  • has, or whose spouse or civil partner has, general earnings from overseas Crown employment subject to UK tax.

Some contributions never qualify. Contributions paid after the member reaches 75 are not relievable (section 188(3)(a)), and contributions paid by an employer give the member no personal relief (section 188(3)(b)).

What is the annual limit on relief?

Section 190 sets the maximum contributions on which a member can have relief in a tax year as the greater of:

  • the “basic amount”, currently £3,600, and
  • the individual’s relevant UK earnings chargeable to income tax for that year.

The figure is gross. In a relief at source scheme a £3,600 contribution is paid as £2,880, with the scheme reclaiming £720. This limit is separate from the £60,000 annual allowance. The annual allowance decides whether a tax charge arises on total pension saving; the earnings limit decides how much of your own contribution gets relief in the first place.

What counts as relevant UK earnings?

Section 189(2) defines relevant UK earnings as employment income, income chargeable under Part 2 of the Income Tax (Trading and Other Income) Act 2005 that is immediately derived from carrying on a trade, profession or vocation (alone or as a partner acting personally), and patent income where the individual devised the invention. HMRC’s list at PTM044100 includes:

  • salary, wages, bonus, overtime and commission taxable as employment income
  • taxable benefits in kind
  • Statutory Sick Pay and Statutory Maternity Pay paid by the employer
  • the part of a redundancy payment above the £30,000 exemption in section 403 of the Income Tax (Earnings and Pensions) Act 2003
  • self employed and partnership trading profits
  • royalties and certain sale proceeds from a patent the individual invented.

Earnings that are not taxable in the UK because of a double taxation agreement are treated as not chargeable, so they do not count (section 189(3)). PTM044100 also states plainly that a pension is not earnings.

Why do rental income and dividends not count?

The definition in section 189(2) is a closed list, and neither property income nor dividends appear on it. A landlord with £60,000 of rental profit and no other income is limited to relief on £3,600, however much they pay in. Savings interest and investment returns are excluded for the same reason.

Furnished holiday lettings used to be the exception. Profits from a qualifying furnished holiday letting business counted as relevant UK earnings until the regime was abolished. HMRC’s guidance on the abolition confirms that this income is no longer included in relevant UK earnings, and the Finance Act 2025 removed those paragraphs from section 189 for 2025 to 2026 onwards. See our page on the furnished holiday lettings abolition.

Company directors are the other group affected. A director paid a small salary and the rest as dividends has relevant UK earnings equal only to the salary and any taxable benefits. That is one reason why directors usually have the company contribute instead, since employer contributions are not relievable contributions of the member and are not tested against the member’s earnings. Employer contributions still count towards the annual allowance, and the company’s deduction follows its own rules, covered in pension contributions for business owners and spreading large pension contributions. The trade off between pay and dividends is covered in salary vs dividends.

How does the £3,600 rule work for people with little or no earnings?

Anyone who is a relevant UK individual can get relief on up to £3,600 gross even with no earnings. That covers children, carers, people not working and retired people under 75. A parent or partner can pay in for them, and for a child under 16 a parent or guardian can give the scheme the required declarations.

The method of relief limits this. PTM044100 says that where earnings are below £3,600, relief on the part of a contribution above earnings, up to £3,600, can only be given if the scheme operates relief at source. A low earner in a workplace scheme using a net pay arrangement cannot use the £3,600 basic amount there; see relief at source vs net pay.

When are earnings measured, and what if they fall short?

The test uses earnings for the whole tax year in which the contribution is paid. Relief can only be claimed for that tax year, and unused relief cannot be carried forward or back (PTM044100). Someone who pays a large contribution early in the year, expecting a bonus or profits that do not arrive, may end up with relief above the limit. GOV.UK puts the responsibility on the individual and says HMRC can ask for anything over the limit to be paid back.

Under relief at source the member also declares that contributions will stay within the limit, and must tell the scheme if they stop having relevant UK earnings and are no longer entitled to relief on an earlier contribution. The deadline is the later of 5 April in that tax year and 30 days after the event (PTM044220).

A worked example

Illustration only. Two people each pay £16,000 net into personal pensions in 2026 to 2027, a gross contribution of £20,000.

  • Alex has £45,000 of rental profit and £10,000 of dividends, but no employment or trading income. The maximum relievable contribution is £3,600. Relief on the other £16,400 gross is not due, and Alex should tell the provider so that the provider does not claim basic rate relief on it.
  • Sam has a salary of £30,000 and £20,000 of rental profit. Relevant UK earnings are £30,000, so the full £20,000 gross is within the limit.

Sam could have contributed up to £30,000 gross with relief, but not £50,000, even though total income is £50,000.

Which mistakes come up most often?

  • Counting rental profits, dividends or pension income as earnings.
  • Relying on furnished holiday letting profits for 2025 to 2026 or later.
  • Assuming the £60,000 annual allowance is the relief limit, when it is only the charge threshold.
  • Paying in after age 75 and expecting relief.
  • Expecting the £3,600 basic amount through a net pay workplace scheme.
  • Forgetting that treaty exempt overseas earnings do not count.

Higher rate taxpayers within the limit still need to claim their extra relief; see claiming higher rate relief on pension contributions.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.