Higher Rate Pension Tax Relief Guide

Everyone who pays into their own pension is entitled to tax relief but you might not be getting it all if you pay tax at the higher rate.

Basic rate tax relief is given automatically to all taxpayers at a rate of 20% and to encourage saving for retirement the government gives extra tax relief on pension contributions made by people who pay tax at the higher rate of tax.

Unlike the automatic 20% basic rate pension tax relief the additional tax relief available to qualifying higher rate taxpayers needs to be claimed back from HMRC.

Some workplace pension contributions are taken out before income tax is deducted which means you automatically receive the pension tax relief you are entitled in full at your top rate of tax and don’t need to make any effort to claim it back.

Higher rate pension tax relief offers value by increasing your savings for retirement and can give you a tax rebate on tax you have already paid on your income.

Am I eligible for higher rate pension tax relief?

You could be entitled to claim higher rate pension tax relief if you are under 75 years of age and one of the following applies:

• You are a higher rate taxpayer and you have made either employee or personal contributions into a ‘relief at source’ pension scheme.
• Automatic tax relief is not set up on your pension scheme.
• Someone else pays into your pension.

You can ask your pension provider or your employer to find out the contribution arrangement with your pension scheme.

If you’re a member of a company or public sector pension scheme, your employer normally takes your pension payments from your salary before tax is calculated.

This means you automatically get pension tax relief at the highest rate of tax you pay.

Occasionally, an employer might deduct pension contributions after tax has already been taken off your pay.

If this happens, you won’t automatically receive the full tax relief you’re entitled to and should be eligible to claim the additional relief yourself.

How much is higher rate pension tax relief worth?

Higher rate pension tax relief is given on the portion of income you pay tax on at the higher rate.

You will automatically get tax relief at 20% on your pension and after that you can claim back an additional 20% if you are a higher rate taxpayer.

The additional amount of tax relief you can claim takes the total relief up to the 40% tax rate that you pay out.

Additional rate taxpayers who pay tax at the rate of 45% can claim back an additional 25% to match the 45% tax rate you pay out.

You can use our free pension tax relief calculator to work out what you could recoup.

How many years can I claim higher rate pension tax relief for?

HMRC allows you to claim back higher rate pension tax relief through for the last four tax years.

What is the annual pension allowance?

The government sets a cap on the value of pension contributions you can make while still receiving tax relief each year.

This cap is known as the pensions annual allowance and is set at £60,000 per tax year.

Any personal pension contributions exceeding this limit will be subject to income tax at the highest rate applicable to you.

If you use your entire annual allowance in a specific tax year, you might be eligible to carry over any unused allowance from the previous three tax years.

Does higher rate pension tax relief apply to retirement annuities?

Yes, if you pay into a retirement annuity with your own money – not the proceeds of a pension plan − you could also be missing out on tax relief, unless you make a claim to HMRC.

Some retirement annuity providers don’t claim back tax relief automatically.

I am now living abroad, can I claim pension tax relief as a non resident?

If you are not living in the UK and are paying tax on a UK pension you could qualify for a rebate on some, or all, of the tax you have paid.

Your eligibility depends on which country you are living in and your UK non residency status.

More details about non-resident pension tax relief can be found in our non resident pension guide.

Higher rate pension tax relief and self assessment

Individuals who complete a self assessment tax return will need to include their pension contributions on their return.

Any applicable pension tax relief will be calculated by HMRC after they have received your tax return.

If you have completed a self assessment tax return in the last four tax years and not included higher rate pension contributions you can amend your tax return(s).

Depending on when the tax return was submitted you can do this by either sending an amended return online or by making an overpayment relief claim in writing to HMRC.

How do I claim higher rate pension tax relief?

Under PAYE there is a timescale of four tax years to claim or you will miss out.

To claim for previous tax years you’ll have to make a direct claim to HMRC.

This has to be done in writing with supporting evidence for each tax year and posted to: PAYE and Self Assessment, HMRC, BX9 1AS.

Claiming higher rate pension tax relief and your tax code:

In some cases you can call HMRC and your tax code can be adjusted.

This would usually be in circumstances where you are eligible for higher rate pension tax relief in the current or next tax year.

HMRC will send your employer a new tax code to use which will include an allowance that results in you receiving your pension tax relief throughout the tax year by paying less tax.

You can find other tax relief opportunities that you can claim at the same time in our tax relief guides.

How am I paid a higher rate pension tax rebate?

HMRC will calculate your higher rate pension tax rebate and offset any other over or underpayments of tax before refunding a pension tax rebate.

If your pension tax rebate is through PAYE or self assessment HMRC will usually try and pay you via BACS directly to the bank account details you provide them with.

HMRC can send a cheque in cases where making a BACS payment isn’t possible.

You can check the progress of any rebate due via your online personal tax account or self assessment account.