How to claim higher rate tax relief on my pension

Tax relief is one of the best parts about saving into a pension, and it makes for a highly efficient savings strategy if it’s managed sufficiently.

If you’re in a higher tax bracket, it’s possible that you aren’t maximising the benefits that pension contribution has to offer you, such as higher rate tax relief.

Contrary to what many pension contributors think, the higher rate tax relief is not applied by default – it requires you to take action to sort out your pensions and tax.

If you feel like you’re missing out on some potential tax benefits, it’s worth checking out the higher tax relief rate in more detail.

Higher rate tax relief explained

The underlying principle behind tax relief is the idea that any money you contribute to your pension should be exempt from tax.

In practice, and for the basic rate taxpayers, this results in the government adding an extra 20% on top of your pension contributions. Say, for example, you contributed £100, the government would top this up with a 20% increase, making the final amount contributed £120.

For taxpayers in the higher bracket, however, the tax relief rate increases to 40%, effectively making every pound you contribute to your pension worth around £1.66.

If you’re eligible for this additional 20% relief, you’ll need to apply for it on your tax return. You’ll automatically get the basic rate of 20%, you just need to make sure you claim the extra half back.

The benefits of higher rate tax relief and your pension

More tax relief effectively means you earn more on each pension contribution. The higher rate tax relief is aimed to make saving into a pension over twice as valuable for those in the higher tax bracket.

For example, if you pay the higher rate of 40%, claiming the extra 20% through higher tax rate relief enables a £60 contribution to equal £100.

Claiming higher tax rate relief on your contributions

To claim your higher tax relief, you’ll need to reach out to HMRC directly or include the claim in your online self-assessment form.

The latter may be tricky if your employee pays your taxes for you or you’ve not yet set up your account via the online portal. You can access the self-assessment tax returns overview here for more information.

When you’re going for the online self-assessment route, make sure that you include your entire pension contribution amount in the relevant section, and this should include the 20% basic rate relief.

You can also write to your local HMRC tax office, letting them know how much tax you’ve paid in relation to your pension contributions if this will be easier for you. Your payslip should provide you with a breakdown of the relevant details, i.e., how much you’ve paid into your pension pot.

You will usually receive the tax relief in the form of a rebate at the end of the financial year, but you may also get it as a tax liability reduction.

A financial advisor will be able to help you with this, so it’s worth reaching out for professional advice if you’re struggling – it could pay off big time in the long run.

What if I didn’t claim for previous years

If you’ve forgotten to claim for previous years, or you only just discovered you could claim this extra 20%, it’s important to note that you’ve got a four-year time limit to do so.

Summary

Higher rate tax relief is a wonderful way to maximise your pension contributions, so if you’re lucky enough to be in a position to claim it, it’s well worth your time.

Disclaimer 

The content of this article is for general information purposes only and should not be construed as legal, financial or taxation advice. You should not rely on the information contained in this article as legal, financial or taxation advice. The content of this article is based on information currently available to us, and the current laws in force in the UK. The content does not take account of individual circumstances and may not reflect recent changes in the law since the date it was created. It is essential that detailed financial and tax advice should be sought in both jurisdictions and any legal advice, if required.

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