Guide

Pension Contributions and Gift Aid: Cutting Your CGT Rate from 24% to 18%

Written by James Whitfield · Updated October 2026 Checked against 2026/27 HMRC rates

Quick answer

Yes. In 2026/27 a personal pension contribution or a Gift Aid donation extends your basic-rate band by the gross amount. That makes room for more of your gain to be taxed at 18% instead of 24%, saving £60 for every £1,000 of gross contribution, up to the size of the gain.¹ The payment has to be made in the same tax year as the gain.

Key takeaways

Your CGT rate depends on how much of the £37,700 basic-rate band your taxable income leaves unused.¹
A relief-at-source pension payment of £8,000 counts as £10,000 gross and widens the band by £10,000.²
Gift Aid works the same way: an £800 donation is £1,000 gross.³
If your income is above £50,270, the contribution first earns higher-rate income tax relief; only the part beyond that frees up band for your gain.
Pension tax relief is capped at 100% of your earnings. Capital gains are not earnings, so a large gain does not raise the cap.²

Why the band matters for CGT

CGT has two rates in 2026/27. HMRC's own method is: take your taxable income (income after the Personal Allowance and reliefs), add your gains after the £3,000 allowance, and anything that falls inside the basic-rate band is taxed at 18%; anything above it at 24%.¹ For most people that band is £37,700 of taxable income, which means a total income of £50,270 with the standard Personal Allowance.

So anything that widens the band, or lowers your taxable income, leaves more room for the gain at 18%. The two common ways to do that are pension contributions and Gift Aid.

How each type of contribution works

Personal pensions and SIPPs (relief at source): you pay 80% and the provider claims the 20% basic-rate top-up. Your basic-rate band is extended by the gross figure. This is the one people use to plan around a gain.²
Workplace pensions run on "net pay": your employer takes the contribution before tax, so your taxable income is already lower. The effect on your CGT band is the same, and it is already built into your payslip figures.
Salary sacrifice: your salary is reduced, so again taxable income is lower before you start.
Gift Aid donations: a cash gift to charity under Gift Aid is treated as paid net of basic-rate tax, and your basic-rate band is extended by the grossed-up amount.³

Worked example: a gain on top of a £50,270 salary

Priya earns £50,270, exactly at the top of the basic-rate band, so she has no band left. In 2026/27 she sells shares and makes a gain of £23,000, which is £20,000 after her £3,000 allowance. She compares three options before 5 April 2027.

Priya's CGT with different personal pension payments

No pension payment
£20,000 at 24%	£4,800
Pays £8,000 (£10,000 gross)
£10,000 at 18% + £10,000 at 24%	£1,800 + £2,400
CGT	£4,200
Pays £16,000 (£20,000 gross)
£20,000 at 18%	£3,600
CGT	£3,600

Saving: £600 with a £10,000 gross contribution, £1,200 with £20,000 gross. Beyond £20,000 gross there is no further CGT saving because the whole gain is already at 18%.

The CGT saving is on top of the normal pension benefit: the £16,000 Priya pays becomes £20,000 in her pension, which she can draw later under the pension rules. The money is locked away until at least age 55 (57 from April 2028), so this only makes sense for money she was happy to put into a pension anyway.

If your income is above £50,270

The band extension still happens, but your income uses it first. Say you earn £60,000 and pay £8,000 (£10,000 gross) into a personal pension. Your basic-rate limit rises from £50,270 to £60,270, so only £270 of extra band is left for your gain.

That is not wasted money: the first £9,730 of the contribution earns you higher-rate income tax relief (claimed through Self Assessment), worth 20% on top of the basic-rate top-up. But if your aim is specifically to move a gain from 24% to 18%, you need a gross contribution larger than the gap between your income and £50,270.

Limits and traps

Earnings cap: tax relief only applies to contributions up to 100% of your earnings for the year (or £3,600 gross if you earn less than that). Rental profits, dividends and gains are not earnings.²
Annual allowance: total pension savings above £60,000 a year (less if your income is very high or you have already drawn pension income flexibly) trigger a tax charge.
Same tax year: the contribution must be paid by 5 April of the tax year in which the gain arises. For a 2026/27 gain, that is 5 April 2027. Pension contributions cannot be carried back to an earlier year.
60-day property returns: if you sold UK residential property, your 60-day return estimates the rate using your expected income. If a later pension payment changes the band, the figure is corrected in your Self Assessment return and any overpayment is repaid.
Gift Aid must be real giving: you are giving the money away. It only lowers CGT by 6p for every pound of gross donation, so it is a bonus on donations you were going to make, not a reason to donate.

Quick reference: savings per £1,000

CGT saved per £1,000 of gross contribution that reaches your gain, 2026/27

You pay into a personal pension	£800
Gross contribution (band extension)	£1,000
Gain moved from 24% to 18%	£1,000
CGT saved	£60

Test the effect on your own gain

Run the calculator with your income as it is, then again with your income reduced by the gross pension contribution. The difference is roughly what the contribution saves in CGT.

Open the CGT calculator

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Frequently asked questions

Do pension contributions reduce capital gains tax?

Yes, indirectly. A personal pension contribution extends your basic-rate band by the gross amount, so more of your gain is taxed at 18% instead of 24%. Each £1,000 gross that reaches your gain saves £60 in 2026/27.

Does Gift Aid increase the basic-rate band for CGT?

Yes. A Gift Aid donation extends your basic-rate band by the grossed-up amount, so an £800 donation (£1,000 gross) can move £1,000 of gain from 24% to 18%, saving £60.

When must the pension contribution be paid to reduce CGT?

In the same tax year as the gain. For a gain made in 2026/27, the contribution must be paid by 5 April 2027. Pension contributions cannot be carried back to an earlier tax year.

Can I pay my whole capital gain into a pension?

Not with tax relief unless your earnings are high enough. Relief is limited to 100% of your earnings for the year, or £3,600 gross if you earn less. Capital gains, dividends and rental profits do not count as earnings.

Does this work if I already earn over £50,270?

Partly. The contribution first brings your income back within the extended band and earns higher-rate income tax relief. Only the part of the gross contribution above the gap between your income and £50,270 frees band for your gain.

This page is general information, not financial or tax advice. Pension contributions tie up money until pension age and interact with the annual allowance and other limits; check your position or take advice before making a large contribution.

Sources & references

The rates, allowances and rules in this guide are drawn from the official HMRC and GOV.UK sources below, checked for the 2026/27 tax year. Each link opens the relevant government page in a new tab.

Verified against published HMRC and GOV.UK guidance.