Pensions, child benefits and tax-efficient savings strategies for 2026

Pensions are one of the most tax efficient ways to save, and strategic planning around contributions remains one of the most important tax planning tools available. Forthcoming change to the Inheritance Tax rules on unused pension funds and death benefits, however, will require consideration.

Tax relief

In overview, taxpayers benefit from tax relief on contributions at their marginal rate and tax relief is available on contributions in any given tax year up to the higher of 100% of net relevant earnings, or £3,600 (gross).

The annual allowance

Complex rules limit tax relief on high levels of contribution. The annual allowance limits the amount of tax-relieved pension saving that can be made per year, and this remains at £60,000 for 2025/26. A tax charge can arise if annual pension contributions go above this limit.

Lower annual allowance for higher levels of income

The annual allowance is tapered for those with high income: high income for this purpose means having ‘threshold income’ more than £200,000 (broadly, net income less relief at source pension contributions and salary sacrifice pension contributions) and ‘adjusted income’ (broadly threshold income plus pension contributions by the employer) more than £260,000.

Generally, for adjusted income more than £260,000, the taper reduces the annual allowance by £1 for every £2 of the excess, down to a minimum allowance of £10,000 where adjusted income is £360,000 or more.

The rules here are complex, and we recommend taking professional advice as to the impact in your individual circumstances.

Use annual allowance from earlier years

A carry forward of unused annual allowance is available for three years. This is useful for individuals who have uncertain income streams or in situations where the owner managed business company employer has fluctuating profits, and may allow higher contributions to be made in a given tax year where there is brought forward capacity available.

For 2025/26, the unused allowance that can be brought forward is from 2022/23, 2023/24 and 2024/25, provided the individual was a member of a registered pension scheme at some time during the relevant brought forward tax year. Note however, that the annual allowance available for 2022/23 was only £40,000.

Unused annual allowance carried forward is the amount by which the annual allowance for that tax year exceeded the total pension savings for that tax year.

The annual allowance for the current tax year is always used before any unused allowance brought forward. The earliest year unused allowance is then used before a later year. Please do talk to us for further advice.

Keeping track of pension savings

It is not unusual for people to lose track of pension savings over time. Figures suggest that some 3.3 million pension pots, containing £31.1 billion in assets, are ‘lost’. The average size of a lost pot is highest among those aged 55 to 75, and stands at £13,620.

High income child benefit charge and tax-free childcare

These are areas that can add considerable complexity.

High income child benefit charge

How it works

The high income child benefit charge (HICBC) applies where one of a couple gets child benefit and either they, or their partner have what is called adjusted net income above a certain threshold. Adjusted net income is broadly net income after the deduction of contributions to personal pension schemes and gift aid payments.

For income earned above this threshold, the charge claws back child benefit payment until an upper threshold is reached. At this point, all financial benefit of receiving payment is lost.

Current thresholds

The HICBC now applies where adjusted net income is more than £60,000. It then claws back child benefit payment at a rate of 1% for every £200 of income above £60,000, to the upper threshold, which is £80,000.

Who is liable

For HICBC purposes, partner means spouse, civil partner, or someone you live with as if you were married.

If both parties are over the income threshold, HICBC is the responsibility of the higher earner; this means that either partner can be liable, regardless of whether they are the one receiving child benefit. This can cause practical issues where couples run their finances independently, and one party doesn’t know the other claims child benefit.

How to pay: latest information

The procedure for payment has been problematic in the past, and anyone who had to pay the charge was required to complete a self assessment tax return. There is now, however, the option to use a new service and pay the HICBC through PAYE, by having the tax code adjusted.

The PAYE route can be used provided there is no other reason to submit a self assessment tax return, such as self-employment or rental income. Anyone who needs to stay in self assessment must also pay the charge through self assessment.

The PAYE option is only available on or before 31 January in the year after the tax year for which there is a liability.

Note, however, that where someone has previously been registered for self assessment in order to pay HICBC, they need to deregister from self assessment first. This is done by phoning HMRC. They then need to register to pay under PAYE. The page with relevant details on gov.uk is found by searching ‘child benefit tax charge pay charge PAYE’.

Planning round tax-free childcare

Tax-free childcare (TFC) helps with the cost of approved childcare for children up to age 11, on a per child basis. For disabled children, the age limit is 16.

Eligible parents register with the government and open an online account. The government then tops up payments into the account, at a rate of 20p for every 80p paid in, with a maximum top-up of £2,000 per child. For disabled children, the maximum is £4,000.

Who qualifies

Claimants must generally be in work, either on an employed or self-employed basis. They and their partner must generally have adjusted net income less than £100,000 per year, but expect to earn at least the equivalent of 16 hours at the minimum wage per week for the three months following application. This is around £203 per week for those over 21 in 2026/27. Some types of income, such as dividends and interest, do not count towards this minimum earnings requirement.

We can help

Managing pensions, contributions and the wider tax implications can be complex, particularly with forthcoming changes to the inheritance tax rules on unused pension funds and death benefits. Our team can help you understand how these updates affect your retirement planning, cashflow and long‑term goals. By working closely with our tax specialists, we ensure your pension strategy fits seamlessly with your overall financial and estate planning, making the most of available reliefs while avoiding unexpected charges.