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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.


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

The average pension pot stands at £25,000 at retirement, so most people do not even get close to the maximum annual allowance in their lifetime.

What if I don’t pay income tax?

If you do not pay income tax but still contribute to a pension fund you are still entitled to 20% tax relief on contributions.

As with basic-rate taxpayers you actually receive a boost of 25% on contributions because of the way tax relief is calculated, meaning a contribution of £80 a month would become £100.

This relief is automatically added to your pension pot, so you don’t need to worry about claiming it.

Aren’t they getting rid of tax relief?

There were lots of rumours before the 2012 Budget that higher-rate tax relief would be scrapped, meaning those paying 40% and 50% would not be able to claim the extra 20% and 30% they receive in relief.

The rumours started after chief secretary to the Treasury Danny Alexander said the government could no longer afford tax breaks for the wealthy.

Higher-rate tax relief currently costs the government £7 billion a year, with the majority of pension tax relief going to the wealthy, who are arguably less in need of it.

However, after much speculation the government decided to leave pensions tax relief alone in the 2012 Budget. No tweaks were made to it. The only change will be the fall in the 50% income tax rate to 45% in 2013/14, which will also reduce the amount of tax relief given by 5%.

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15 comments so far. Why not have your say?

tony silverman

Apr 02, 2012 at 07:44

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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Michelle McGagh (Citywire)

Apr 02, 2012 at 12:30

Hello Tony,

Thanks for flagging this, I have amended.

All the best,


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Adam Murza-Murzicz

Apr 02, 2012 at 12:46

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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tony silverman

Apr 02, 2012 at 13:33


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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Adam Murza-Murzicz

Apr 02, 2012 at 13:42

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

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Ian Grumpy

Apr 02, 2012 at 14:48

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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Anonymous 1 needed this 'off the record'

Apr 03, 2012 at 09:40

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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Gill Pelosi

Apr 03, 2012 at 12:38

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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Apr 05, 2012 at 11:54

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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Apr 08, 2012 at 11:33

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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PAYE taxpayer

Apr 10, 2012 at 08:36

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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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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rachel newman

Sep 25, 2016 at 20:18

If you pay £10,000 into a self invested personal pension (SIPP) and as a 40% tax payer. Government tops up making £12500. But what about the other 20%? If HMRC raises the amount being taxed at 20% you pay 20% tax on the pension contribution of £12500 i.e £2,500 so where is the 40% saving ? as when you take the pension out you pay 20% on that amount again so in all you will end up paying £5,000 back to HMRC on the original £10,000 out into your pension pot. Help !!!

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Gerard Mc Govern

Feb 18, 2017 at 13:30


The 40% saving is as follows: you receive a 25% top up on your net contribution of £10,000.Your gross contribution is now £12,500- £2,500/£12,500= 20%. If you are required to submit a tax return or indeed are entitled to submit a tax return to claim back the additional tax relief at 40%-HMRC extends your basic rate band by £12,500 where you are a 40% tax rate payer so 40%-20% = 20% .Multiply the £12,500 by 20% and you come back to £2,500. In short, the government tops up you pension by 25% of net contribution or by 20% of gross contribution and you also get a tax relief saving of 20% against your taxable income as above but only on the lesser of your taxable income at the 40% rate or gross pension contribution. .

When you eventually draw down your pension (which is taxable) the tax payable will depend on your total taxable income which will include your pension at the time so if you will be basic rate taxpayer you will have no further tax to pay but and it is a big but, if your taxable income at the time, excluding your pension income will be taxable at the higher rate then you will be paying tax at the 40% rate or at the equivalent higher rate in the future on your pension income .The real saving is in the cash - free top up of 25% .As always, this answer relates to how tax law currently stands.Hope this answers your question.

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Sep 22, 2017 at 09:52

I would be grateful if someone could comment on any tax law changes for higher rate relief (40%) taxpayers since the original artical was written in 2012; in the article it advises:

"When you fill in the form, make sure you state how much your have contributed to your pension – you must give the gross contributions, which is the amount you have paid in plus the basic rate of tax relief you have already received on both your and your employer's contributions."

HMRC advised me recently that only your personal pension contribution at the Gross amount can go into your tax return for Higher Rate relief; is that correct? As always an example would be useful; please use an annual personal pension contribution of £5000 and employer contribution of £6000.



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