Earn £50,000+ but can only get tax relief on £12,000 of per­son­al pen­sion con­tri­bu­tions?

It sounds wrong — but it could be exact­ly how the rules work.

One of the most com­mon mis­un­der­stand­ings around pen­sion con­tri­bu­tions is that your £60,000 annu­al pen­sion allowance means you can per­son­al­ly con­tribute £60,000 and receive tax relief.

Not nec­es­sar­i­ly.

For per­son­al pen­sion con­tri­bu­tions, tax relief is gen­er­al­ly lim­it­ed to 100% of your Net Rel­e­vant Earn­ings or £60,000, whichev­er is low­er.

And here’s the impor­tant bit for own­er-man­aged busi­ness­es:
❌ Div­i­dends don’t count as Net Rel­e­vant Earn­ings
❌ Rental income doesn’t count
❌ Inter­est doesn’t count
❌ Cap­i­tal gains don’t count

So, for exam­ple, if a com­pa­ny direc­tor receives:
£12,000 salary
£38,000 div­i­dends

Their Net Rel­e­vant Earn­ings are £12,000 — not £50,000.

That means the max­i­mum gross per­son­al pen­sion con­tri­bu­tion qual­i­fy­ing for tax relief is gen­er­al­ly £12,000 (or £9,600 paid per­son­al­ly, with basic-rate tax relief added).

But there is an impor­tant alter­na­tive…

Employ­er pen­sion con­tri­bu­tions are not sub­ject to the Net Rel­e­vant Earn­ings restric­tion.

For own­er-man­aged com­pa­nies, this can pro­vide a valu­able oppor­tu­ni­ty for the com­pa­ny to make pen­sion con­tri­bu­tions on behalf of the direc­tor, poten­tial­ly even where the direc­tor has a rel­a­tive­ly low salary.

The pen­sion rules are more com­pli­cat­ed than they first appear, and pen­sion providers don’t nec­es­sar­i­ly check whether you have suf­fi­cient Net Rel­e­vant Earn­ings when accept­ing con­tri­bu­tions.

Pay­ing mon­ey into your pen­sion does­n’t auto­mat­i­cal­ly mean you’ll get tax relief on all of it.

If you’re a busi­ness own­er con­sid­er­ing a sig­nif­i­cant pen­sion con­tri­bu­tion, it’s worth check­ing the posi­tion before mak­ing the pay­ment.