Does My Bonus Count Towards Higher Rate Pension Relief

How bonuses are taxed in the UK

A bonus is considered taxable income, just like your regular salary. When it’s paid, your employer deducts income tax and National Insurance through PAYE in the same way as your normal wages.

The tax you pay depends on your total income for the year. If your bonus takes you above the higher rate threshold, that portion of your income will be taxed at the higher rate of 40% (or 45% if you earn over £125,140 in 2025 26).

For example, if you earn £45,000 and receive a £10,000 bonus, £5,270 of that bonus pushes you into the higher rate band, meaning you’ll pay 40% tax on that amount.

Because bonuses can change your tax position, they can also affect how much pension tax relief you’re entitled to claim.

How pension tax relief works

The government encourages retirement saving by giving tax relief on pension contributions. This means some of the money that would have gone to HMRC as tax is added to your pension instead.

Basic rate taxpayers (20%) get automatic relief.

Higher rate taxpayers (40%) and additional rate taxpayers (45%) can claim extra relief on contributions that fall within their higher tax bands.

The way you receive that relief depends on your pension scheme type — usually either net pay, relief at source, or salary sacrifice.

When a bonus triggers higher rate pension relief

If your bonus increases your total income into the higher tax band, you can usually claim extra pension relief on any contributions made during that period.

For instance, say your normal salary is below the higher rate threshold, but a one-off bonus pushes your annual income above £50,270. The extra portion taxed at 40% is classed as higher rate income. If you contribute to a pension during that tax year, you can claim the additional 20% relief (to make up the full 40%) on contributions covering that higher-rate income.

This can make paying a bonus into your pension particularly tax-efficient.

Example: using a bonus to gain higher rate relief

Let’s say you earn £48,000 and receive a £7,000 bonus, taking your total income to £55,000.

The first £50,270 is taxed at 20%.

The remaining £4,730 is taxed at 40%.

If you contribute £4,730 to your pension (either personally or via your employer), you can claim higher rate relief on that portion. This means:

You’ll get 20% basic relief automatically (the pension provider adds this).

You can claim another 20% through your tax return or by contacting HMRC.

This effectively turns £4,730 of post-tax income into a £5,912.50 contribution at a cost of £3,784 to you — a significant tax saving.

How salary sacrifice affects bonus contributions

If your employer offers a salary sacrifice scheme, you may be able to sacrifice all or part of your bonus directly into your pension. This approach gives you full tax and National Insurance savings immediately, without needing to claim higher rate relief separately.

For example, if you sacrifice a £5,000 bonus into your pension:

Your taxable income is reduced by £5,000.

You save 40% income tax (if you’re a higher rate taxpayer).

You save 2% employee National Insurance (or more if your employer passes on their NI saving).

This can be even more efficient than receiving the bonus in cash and contributing it later, because you avoid tax upfront rather than reclaiming it later.

However, salary sacrifice must be arranged in advance of the bonus payment — you can’t apply it retrospectively once the bonus has been paid.

Claiming higher rate relief on a bonus

If your pension operates on a relief at source basis (where contributions are taken after tax), your provider will add 20% basic rate relief to your pension automatically. To claim the extra 20% (for higher rate), you need to either:

Complete a Self Assessment tax return, or

Contact HMRC to request a coding adjustment.

You’ll need to tell HMRC the total amount of gross contributions you made during the tax year, including any from your bonus. HMRC will then adjust your tax code or issue a refund for the extra relief due.

If your pension uses a net pay arrangement, the full relief (including higher rate) is already applied automatically through payroll, so you don’t need to claim anything.

Annual allowance and limits

While contributing your bonus to your pension can be tax-efficient, there are limits to how much you can contribute each year.

The annual allowance for 2025 26 is £60,000 (or 100% of your earnings if lower). If your total contributions exceed this amount, you may face a tax charge.

Higher earners with adjusted income above £260,000 may have a reduced (tapered) allowance. However, you can usually carry forward unused allowances from the previous three tax years to increase your limit.

When a bonus could reduce your pension relief

In some cases, a large bonus could reduce your entitlement to certain tax benefits, such as:

Tapered annual allowance: High bonuses can push your adjusted income over £260,000, reducing how much you can contribute tax-free.

Personal allowance loss: If your income exceeds £100,000, you lose £1 of personal allowance for every £2 earned above that level, which increases your effective tax rate.

If your bonus is large enough to affect these thresholds, seek advice before making extra pension contributions to ensure you stay within the limits.

Strategic timing for bonus contributions

The timing of your pension contributions can make a difference. If you expect a large bonus near the end of the tax year, consider:

Asking your employer if part of the bonus can be paid as a salary sacrifice contribution before it’s processed through PAYE.

Making a personal contribution before 5 April to ensure it counts in the same tax year as the bonus income.

This approach maximises the tax relief available and keeps your pension savings growing efficiently.

Key takeaways

Your bonus counts as taxable income and can push you into the higher rate band.

Pension contributions made in the same tax year can qualify for higher rate relief if your income exceeds £50,270.

Salary sacrifice lets you save tax and National Insurance before the bonus is paid.

If you contribute personally, you may need to claim higher rate relief via HMRC.

Be mindful of the £60,000 annual allowance and tapered limits.

Final thoughts

Your bonus can absolutely count towards higher rate pension relief, provided your total income for the year crosses the higher rate threshold. Contributing all or part of your bonus into your pension is one of the most effective ways to reduce tax and build long-term savings.

Whether you use salary sacrifice or make personal contributions, the key is timing and understanding how your scheme applies relief. With careful planning, you can make your bonus work twice — rewarding your performance today while securing your future retirement.