Claire Trott, Technical Connection

Navigating pension contributions requires a clear understanding of what counts as relevant UK earnings and how different income types feed into the tapered annual allowance. With the rules becoming increasingly nuanced, getting these distinctions wrong can lead to unexpected tax charges or the need to unwind contributions later.

When you are considering pension contributions you need to firstly understand the income your client has, if it counts towards relevant UK earnings (pensionable income), or if it is only relevant with regards to the tapered annual allowance calculation. It can be confusing and getting it wrong can result in tax charges or trying to unwind contributions next tax year that aren’t entitled to tax relief.

The tapered annual allowance calculations use all income chargeable to income tax, including rental profit and dividends but only earnings, such as salary and self-employed income, are included when you are calculating what is relevant UK income. However, from April 2025 furnished holiday letting income ceased to be included as relevant UK earnings and as such we need to be careful if this has been used for tax relief previously.

Getting this wrong could mean that you either assume that the tapered annual allowance is too high, or that the amount of tax relief that can be claimed is too high. The first means that a tax charge will apply when correctly calculated, the second means that the tax relief can’t be claimed, and a refund may be applicable.

It is also important to understand the type of contributions being made by, or on behalf of, your client — is it personal from gross income, personal from net income, employer or salary sacrifice? This will all be used to determine how much should be tested against the annual allowance and where they factor into the tapered annual allowance calculations if relevant.

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This article is intended for regulated financial advisers and investment professionals only.

The statements and opinions expressed in this article are those of the author and don’t necessarily reflect those of Wealthtime or any of its employees. The company does not take any responsibility for the views of the author.

The above is based on understanding of current law and HMRC practice, and Government proposals regarding future law and HMRC practice, as at 23 February 2026, and are presented for general consideration only and no action must be taken or refrained from based on the content of this article alone. Each case depends on its own facts and advice is essential. Accordingly, neither Wealthtime nor Technical Connection, nor any of their officers or employees can accept any responsibility for any loss occasioned as a result of any such action or inaction.

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