How to Claim Higher and Additional Rate Pension Tax Relief

Does higher rate tax relief apply to me?

You can claim extra higher-rate and additional-rate pension tax relief if:

• you earn over £50,270, and
• have made either personal or employee contributions into a ‘relief at source’ pension scheme (like Penfold, Nest or any other SIPP provider).

This can amount to a massive 25% of your contributions! You can claim this relief in cash or a reduction in your tax bill via your Self Assessment tax return. In this article, we’ll reveal exactly how you can claim higher-rate and additional-rate pension tax relief.

You should be able to claim tax relief for any pension contributions made over the last four years in your tax return (if you haven't already claimed for them!). If you miss the 31st January deadline, you can write to HMRC using our template to reclaim what you're owed at any time.

What is pension tax relief?

Most of the information in this guide focuses on personal pension tax relief with. To learn more about how pension tax relief works with workplace pensions, head to the Workplace pension tax relief section of this article.

Tax relief is one of our favourite things about pensions. Who doesn’t like free money? A 25% basic-rate tax relief top-up from HMRC on anything you put into your pension, it means every £1,000 you contribute magically becomes £1,250.

And If you earn over £50,270, then lucky you, because you can claim even more back on your pension contributions. All you need to do is fill out a Self Assessment tax return or contact HMRC and the government will send you a cheque with the money you're owed – free to use as you wish.

What is higher-rate and additional-rate pension tax relief?

Higher-rate and additional-rate pension tax relief is an extra level of relief that individuals earning over £50,270 can claim on their personal pension contributions. This is in addition to the 25% basic-rate tax relief bonus everyone gets every time they put money into their pension.

• Higher-rate taxpayers can claim up to 40% in pension tax relief. This means £10,000 of pension contributions could cost as little as £6,000.
• Additional-rate taxpayers can claim up to 45% in pension tax relief. This means £10,000 of pension contributions could cost as little as £5,500.

This added pension relief is little known about and so overlooked that an estimated £830m each year isn't claimed in tax relief. That’s because, unlike basic-rate tax relief which is claimed and then added to your pension automatically by your provider, 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 and additional-rate taxpayers: this bonus tax relief doesn’t have to go into your pension. Any extra 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 personal pension contributions up to the annual pension allowance of £60,000 (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 extra 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, or by writing to HMRC to make your claim.

How much of your contribution benefits from this extra 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.

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.

This 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.

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.

Workplace pension tax relief

Higher-rate and additional-rate taxpayer pension relief may also apply if you have a workplace pension set up by your employer.

Navigating your workplace pension tax relief is quite straightforward. Check with your employer or pension provider which contribution arrangement your workplace pension uses:

• net pay
• relief at source
• salary sacrifice

Net pay

In this method, your employer deducts your pension contribution directly from your salary before tax is applied. This means you receive full tax relief upfront, whether you are a basic, higher, or additional rate taxpayer - you won’t have to actively claim it yourself.

Relief at source

Here, your employer deducts your pension contribution after tax and National Insurance have been taken from your pay. Your pension provider then adds tax relief to your pension pot at the basic tax rate, irrespective of your total earnings.

If you aren’t sure how your employer scheme works, it’s worth chatting with your HR team to confirm, including whether your pension provider adds higher or additional rate tax relief automatically. If not, you may be able to claim money back if:

• you pay higher or additional rate Income Tax
• you pay higher or top rate Income Tax in Scotland

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

Salary sacrifice

This arrangement means you have agreed to reduce part of your salary in exchange for a pension contribution made by your employer. This part of your salary would have been subjected to income tax and National Insurance. Instead, your employer contributes this amount to your pension, free of these taxes.

In a salary sacrifice scheme high earners don’t need to claim back the extra 20% or 25% separately.

How to claim higher rate pension tax relief

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 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.

We’ve produced a tried and tested template for you to use and write to the government to claim your extra 25% tax relief. Download our tax claim template.

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 claim pension tax relief?

Made pension contributions in previous years but didn’t claim the higher-rate or additional-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 2019/20 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).

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 our 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.

Use our tried and tested HMRC tax claim template to claim back your higher rate tax relief. Download our tax claim template.