This is a common query. It is simply a nuance of how you view the calculation. Basic rate tax is indeed 20% on your salary. So for each taxable £100 you earn, the basic rate of tax you must pay is £20. But to accumulate £100 in your pension pot, you pay in £80 and the government pay back the £20 in tax relief. And £20 is of course 25% of £80.