For the 2026/27 UK tax year, an individual has net income of £108,000 before any reliefs, and has made a £4,000 net contribution to a personal pension under relief at source, on which the pension provider has already claimed basic rate tax relief. Under HMRC's adjusted net income rules used for the Personal Allowance taper, how does this pension contribution affect their position?
- The pension contribution is ignored for adjusted net income purposes, because relief-at-source contributions are already relieved at source and cannot be counted again
- The £4,000 net contribution is deducted from net income exactly as paid, reducing adjusted net income to £104,000
- The pension contribution increases adjusted net income, because the tax relief added by the provider counts as additional taxable income
- The £4,000 net contribution is grossed up to £5,000 by adding back basic rate tax relief, and that £5,000 grossed-up amount is deducted from net income, reducing adjusted net income to £103,000
Why D? And why not the others?
Correct answer: D. The £4,000 net contribution is grossed up to £5,000 by adding back basic rate tax relief, and that £5,000 grossed-up amount is deducted from net income, reducing adjusted net income to £103,000
HMRC's adjusted net income calculation requires relief-at-source pension contributions to be grossed up by adding back the basic rate tax relief the provider already claimed, so a £4,000 net contribution becomes £5,000 once grossed up, and that £5,000 grossed-up figure — not the £4,000 actually paid — is what gets deducted from net income, taking £108,000 down to £103,000, exactly as the correct option describes. The option ignoring the contribution entirely is wrong because relief-at-source contributions are explicitly included in the adjusted net income adjustment precisely to extend basic rate relief into a reduction of adjusted net income for Personal Allowance taper purposes. The option deducting only the £4,000 net amount is wrong because it skips the required grossing-up step, understating the true reduction to adjusted net income. The option claiming the contribution increases adjusted net income has the direction backwards; pension contributions reduce adjusted net income, they do not add to it.
Source: GOV.UK: Adjusted net income guidance — pension contributions and Gift Aid