How to Claim Higher Rate Tax Relief on Pension Contributions

HMRC won’t just send you a cheque in the post out of the goodness of their heart, you’ve got to claim it. Lucky for you, we’re about to make it painfully easy to understand.

How Higher Rate Tax Relief Works

Pension tax relief exists because the government actually wants you to save for retirement. The way it works is simple:

• Basic rate (20%) tax relief is automatically added to your pension contributions.

• Higher rate (40%) tax relief requires a little effort on your part, you have to claim the extra 20% back.

• Additional rate taxpayers (45%) can claim even more back, making this a tax-saving goldmine.

Example

Joey earns £53,000 annually and contributes £5,000 to his pension:

• He automatically receives 20% basic-rate relief, meaning £1,000 of his contribution comes from tax relief. His cost is reduced to £4,000.

• As a higher-rate taxpayer, Joey qualifies for an additional 20% relief on the portion of his earnings above £50,270. That’s £2,730.

• His additional tax relief is £546 (20% of £2,730). Combined with the £1,000 basic relief, his total relief is £1,546.

• Joey’s net cost for his £5,000 pension contribution is just £3,454.

If Joey earned £55,270 or more, his entire contribution would qualify for the full 40% relief, reducing his cost to £3,000.

End result? For the amount overpaid in tax, Joey can now chose to adjust his tax code lowering future tax payments or claim a tax rebate

How to Claim Higher Rate Tax Relief

Step 1: Check If Your Pension Scheme Uses ‘Relief at Source’ or ‘Net Pay’

Your pension scheme’s method determines how you claim relief:

• Relief at Source: You need to manually claim the extra tax relief.

• Net Pay Arrangement: Your employer sorts it out automatically.

If your pension scheme uses Relief at Source method, this means you need to take action.

Step 2: Claim via Self-Assessment

For as little as £100, Towerstone Accountants will file a self-assessment tax return on your behalf to ensure you receive every penny you’re owed. There are absolutely no upfront costs and we handle everything for you. We secure your tax refund with no upfront costs, handling all the paperwork from start to finish.

Step 3: Claim via PAYE

No tax return? No problem! You can claim through your tax code by:

• Calling HMRC (brace yourself for 45 minutes of hold music).

• Writing to HMRC and explaining your pension contributions.

• Using your Personal Tax Account online to update your tax code.

HMRC will then adjust your tax code so you pay less tax over the year.

How Far Back Can You Claim?

HMRC lets you claim back tax relief for up to four years. If you haven’t been claiming, you might be sitting on a four-figure refund waiting to be collected.