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How to claim higher-rate tax relief on your pension

We tell you how to avoid becoming one of the 250,000 higher-rate taxpayers who miss out on tax relief on their pension contributions.

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by Michelle McGagh on Apr 02, 2012 at 00:01

How to claim higher-rate tax relief on your pension

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 this isn't always the case – in many cases you must claim it. Unfortunately, you don’t get the money in your pocket. Instead, the government tops up your pension pot so you have more money in retirement.

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) automatically 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. This is known as ‘relief at source’.

Although the contribution is said to be increased by 20%, the way the relief is calculated means you actually receive a 25% uplift in your contribution. For example, if you pay £80 into your pension every month, the government will add another £20 – making the total contribution worth £100.

Are the rules different for higher-rate taxpayers?

The rules are different for those paying the 40% higher-rate income tax, and also the 50% highest tax rate.

Those paying 40% income tax are entitled to 40% pensions tax relief on contributions, and 50% taxpayers are entitled to 50% tax relief – although this will drop to 45% in 2013/14 when the highest rate of income tax is cut for those earning £150,000 a year or over.

When 40% and 50% taxpayers contribute to a pension they automatically receive 20% tax relief on their contributions to personal pensions and employer pensions.

However, the rules around claiming the rest of the tax relief, either 20% or 30%, change for higher-rate taxpayers.

If you are contributing to an employer pension scheme which is a final-salary or occupational money purchase scheme, you do not have to worry about claiming the rest of the relief. Your pension pot will automatically receive tax relief of either 40% or 50%.

However, people in group stakeholder pension schemes, group personal pension schemes and personal pension schemes that they pay into privately will have to claim the 20% or 30% extra tax relief that you are owed from the government.

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12 comments so far. Why not have your say?

Correction ....Now we have the 50K cap for pensions relief for this tax year 2011-2012 and onwards you must include employer contributions also.

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Hello Tony,

Thanks for flagging this, I have amended.

All the best,

Michelle

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We are so obsessed with tax relief and the avoidance of tax that we forget that the less we put into the Goverment's coffers the less it has to spend on health sevices, roads, the police, the military etc. And then we complain that there is not enough money to fund all those services. You cannot have your cake and eat it.

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Adam

I choose to benefit from tax breaks in order to fund a decent retirement and to be self-reliant which means hopefully that I won't be a drain on the country's resources from a benefits perspective before/after retirement.

My choice I think?

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Egoism, I think - Self-reliant perhaps but having deprived others in society.

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I can hardly believe that Adam is suggesting that Tony is being egoistic by claiming tax relief on pension contributions and that this is somehow reprehensible. If I were being charitable I might accept that Adam's name betrays a likely misunderstanding of the subtleties of the english language, but what he's suggesting is that Tony shouldn't claim the tax relief available because in doing do he is depriving others.

Lord give me strength!

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Has anyone ever attempted to back-claim this tax relief from previous years? I think I read an article once saying you could claim up to 5 years of this relief if you had forgotten to do it?

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Anonymous 1 - yes you can claim relief back-dated 6 years I believe. I did this a few years ago and I think the rules are still the same. Just watch that they calculate it correctly - I claimed for a lump sum payment I made about 18 months ago and had to tell them how to calculate it as they didn't know! Took me about 9 months to get the whole amount!

I think the article is wrong in saying that non taxpayers can claim 20% relief unlimited - I have always understood the limit is approx £3600 per year?

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I don't see Adam saying anything about the effective tax 'relief' our bloated Public sector receives. There are many parts of the UK where the Public Sector represents the vast majority of the workforce. These areas are typically seen as depressed and therefore deserving of artificial employment e.g. Northern Ireland, Cardiff, Newcastle.

How many years will it be until these areas are benefiting from a large, relatively wealthy and taxpayer funded retired population Vs the South where the Private Sector, with its poor pension provision, is the majority employer?

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Adam, taxation is simply legalised robbery which we all have to accept. It is a drag on economic growth as money taken from the productive does not get reinvested in business. The wealth confiscation by government has reached it's limit - so now, they are going to steal wealth by inflation. That is the only way to pay down the unbelievably large sovereign debts.

With economic mismanagement on this grand scale those of us who are genuinely productive have every right to try and protect themselves from invasive, inept government that subsidizes too many lazy, unmotivated and often uneducated people. Those that are genuinely poor need help and should get it, but those who are just abusing the system as part of the cradle to grave socialism should learn to be self reliant and develop a sense of pride in doing so. Those who depend on the state begging bowl will never accept this as it means stepping out of their comfort zones.

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You shiould not lure people into this trap of tax relief. Pension tax relief is the biggest con ever. HMRC owes me thousands because they find ways to wear you down and not to repay you the higher rate tax relief, ignoring letters, refuse to answer the telephone "six weeks is our response time, Sir". Do not lure people into this trap any more. It is a complete con perpertrated by the Pensions industry

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Burruz

Apr 13, 2012 at 15:50

3 years ago i moved my pension from a 'with profits' scheme and into a pension wealth fund. This was the best thing I have ever done as I have seen 66% growth to date after receiving approximately 3% per year over the past 18 years!

I am a higher rate tax payer and do claim the tax back but this has never been a problem with the taxman. I also totally agree with Adam and believe it is the responsible thing to do to ensure you are not a burden on society in the future.

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