Claiming Tax Relief For Pensions

Taxpayers in Britain give away £2.45 billion to the taxman each year by failing to claim all the pension tax relief to which they are entitled.


Everyone who pays into a pension – either through their employer or personally – is entitled to tax relief on contributions, essentially free money from the government to encourage you to save more for your retirement. It is estimated that 250,000 higher-rate taxpayers do not claim back all of their relief because they mistakenly believe they receive it automatically – but in some cases you have to make a claim to receive the full tax relief available. 


How much do I get? 


The amount of tax relief you get on your pension contributions depends on the top rate of income tax you pay. 

Basic-rate taxpayers (who pay 20% income tax) receive 20% tax relief on all contributions. The money gets paid into their pensions automatically, whether it is operated by their employer or if it is a personal pension. 


Are the rules different for higher-rate taxpayers?


The rules are different for those paying the 40% higher-rate income tax, and also the 45% additional tax rate. 


Those paying 40% income tax are entitled to 40% pensions tax relief on contributions, and 45% taxpayers are entitled to 45% tax relief – 20% of which they’ll receive automatically as detailed above.  


However, the rules around claiming the rest of the tax relief, of either 20% or 25%, change for higher-rate taxpayers.


If your employer pension scheme is a ‘final salary’ or ‘occupational pension scheme’, then your pension pot will automatically receive the full tax relief of either 40% or 45%.  


But if your employer scheme is a ‘relief at source’ pension scheme, or if you have a personal pension, then you will have to claim the additional 20% or 25% from the government. 


‘Relief at source’ pension schemes are most likely if you’re a member of an individual or group personal pension, self-invested personal pension or stakeholder pension scheme.


If you’re unsure if you’re in a ‘relief at source’ pension scheme, it’s best to contact your HR department or pension scheme administrator.


How do you claim this extra tax relief?


Either complete an annual self-assessment tax return or call/write to HMRC and request a higher rate taxpayer relief refund. You can reach HMRC on 0300 200 3300.


Do note, the higher rate taxpayer pension relief you’re due won’t be added to your pension pot. You’ll receive the relief in one of three ways*:


1.     Your tax code will be adjusted. (Your tax code is used by your employer or pension provider to work out how much income tax to take from your pay or pension.)

2.    A tax rebate (refund).

3.    A reduction in the tax you already owe to HMRC.


*Additional rate tax relief can only be claimed through self-assessment. 


How long can you claim back for?


You can claim back up to four years after the end of the tax year your claim relates to.


So, for example, suppose you’ve just discovered you could have been claiming pension tax relief but haven’t done so. We’re currently in the 2020/21 tax year, which ends 6 April 2021. This means you could claim as far back as the 2016/17 tax year which ended 5 April 2017.


Do let us know if you’d like to discuss this further – we’re always happy to help.