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How to claim higher rate tax relief on pension contributions

Kyle Chubb
Wednesday 9th March, 2022

Looking to claim higher rate taxpayer pension relief but not sure how to actually get it? Penfold is here to help.

If you earn over £50,270, you can claim an extra 25% back on your pension contributions. All you need to do is fill out a tax return or contact HMRC and the government will send you a cheque with the tax you're owed - free to use as you wish.

In this article, we’ll reveal exactly how you can claim higher rate tax relief on your pension contributions.

What is higher rate pension tax relief?

Most of us are aware of the attractive tax benefits that come with our pension.

We all enjoy a 25% tax relief bonus every time we pay in - this comes from the basic 20% tax relief added to our pension AFTER we've already paid tax. So, a £1,000 pension contribution becomes £1,250 in our pot.

For higher earners, however, there is an extra level of tax relief that you can claim on top.

This added pension relief is unfortunately little known, not widely publicised by the government. In fact, it’s so overlooked that an estimated £830m each year in tax relief

That’s because, unlike basic rate tax relief which is applied automatically, you'll need to claim higher rate tax relief on pension contributions yourself.

There is also one more fantastic benefit to tax relief on pension contributions for higher rate taxpayers - this bonus tax relief doesn’t have to go into your pension.

Any additional tax relief from your pension can be enjoyed in three ways:

  • A reduction in your annual tax bill
  • A change to your tax code (reducing your tax bill for the following year)
  • A tax rebate

How does higher rate pension tax relief work?

Every taxpayer gets basic rate income tax relief applied to their pension contributions at 20% up to the annual pension allowance of £40,000 (or 100% of your total earnings). As we mentioned earlier, this works out as a 25% bonus on your contribution.

Higher rate taxpayers are eligible to claim an additional 20% tax relief on their contributions - totalling 40% tax relief to match the 40% tax they pay on earnings above the higher rate income tax threshold.

Similarly to the basic rate relief, this functions as another 25% bonus on your contributions. Here's what that looks like in the real world:

Pay £1,000 into your pension, get £250 added to your pot from the government, and another £250 back via your self-assessment tax return.

How much of your contribution benefits from this additional tax relief depends on two things:

  • How much you earn
  • How much you’re contributing

Specifically, the amount of extra tax relief you can claim depends on how much you earn over the higher rate tax band, currently £50,270. You can claim 20% extra tax relief on earnings you pay 40% tax on, or 25% extra tax relief on earnings you pay 45% tax on.

Let’s look at an example of how this works in practice.

higher rate tax relief on pension contributions has to be claimed manually

Sam earns £53,000 a year and wants to pay £5,000 into her pension. Automatically, she’ll get 20% tax relief on her contribution, meaning her £5,000 contribution in her pension only actually costs her £4,000.

That’s because 20% of £5,000 (£1,000) comes from tax relief.

Because Sam is a higher earner, she’s also eligible for a further 20% tax relief. However, because she only earns £2,730 above the higher rate tax band of £50,270, only £2,730 of her £5,000 contribution is eligible for this added relief.

Sam’s extra tax relief totals £546 (20% of £2,730). Add this to the £1,000 basic rate of relief and Sam’s total tax relief equals £1,546.

The means £5,000 in her pension would only cost her £3,454.

If Sam earned £55,270 or above, her entire gross contribution would be eligible for the full 40% tax relief. In that case, her £5,000 contribution costs her just £3,000.

It’s a little complicated, but here’s the key thing to know - if your pension contribution is less than the amount you earn above the higher rate tax band, you’re eligible for 40% on tax relief on the full contribution.

If your pension contribution is more than the amount you earn above the higher rate tax band, only part of your contribution will eligible for the extra tax relief.

chart showing explaining how higher rate pension tax relief works

Higher rate tax on workplace pensions

Higher rate taxpayer pension relief also applies if you have a workplace pension set up by your employer.

Thankfully, because most pension contributions from workplace pension are deducted before tax, you should automatically receive tax relief at your highest rate.

You won’t have to actively claim it yourself.

However, some workplace pension schemes are set up in a way where pension contributions are taken after tax. This is rare, but if you aren’t sure how your employer scheme works, it’s definitely worth chatting with your HR team to confirm.

If this is the case for you, you’ll need to follow the steps below to claim your higher rate taxpayer pension relief.

how much extra tax relief you can claim depends on how much you earn over £50270

How to claim higher rate tax relief on pension

Ok, now we know how high rate pension tax relief works, how do you actually get access to it?

There are 2 ways you can claim higher rate tax relief on pension contributions:

  1. Via your online self-assessment tax return
  2. By contacting HMRC directly

Self-assessment tax return

The easiest way to claim is through an online tax return.

If you haven’t completed a tax return before, you can register here and complete your tax return here.

Then, you’ll need to look for the “tax reliefs” section and add your pension contributions.

It’s important that you add the total gross pension contributions for the relevant tax year. This includes the basic 20% tax relief you’ve already received.

Contact HMRC

You can also claim higher rate tax relief on your pension contributions by contacting the HMRC tax office.

Give them a call (or write a letter) and be ready to let them know your total gross pension contributions. You’ll also need to make sure all the details in your personal tax account are up to date and correct.

It’s also worth noting that if you add more to your pension AFTER you’ve spoken to HMRC, you’ll need to get in touch again to let them know.

How many years back can I pension claim tax relief?

Made pension contributions in previous years but didn’t claim the extra higher rate tax relief. All is not lost.

You can backdate pension contributions for up to the last four tax years. As of today, that means any pension contributions made from the 2018/19 tax year.

Claiming tax relief on pension contributions for previous years works in the same way as claiming for this tax year - you can do this via either of the methods outlined above.

Remember, you’ll only be able to claim for years in which you were a higher earner (earned over £50,270).

You can claim claim higher rate tax relief on pension contributions by filling out an online tax return or contacting HMRC

Claim your higher rate tax relief with Penfold

Penfold is the powerful, award-winning pension that helps you take control of your financial future.

Set up in minutes and combine all your old pots for complete visibility into all your savings. Effortlessly accessible anytime via the website and app.

We’ll automatically claim your basic rate pension tax relief for you - and you can access your complete pension contribution history with just a few taps. 

Penfold gives you everything you need to claim the higher rate pension tax relief you’re owed.

Discover why thousands of savers use Penfold today.

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