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Higher rate taxpayers – are you missing out on your pension tax relief?

As a higher or additional rate taxpayer you could claim up to 45% in pension tax relief when you pay money into your pension. Here's how you could benefit and what to watch out for.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Isabel McDougall
Pensions Writer

Published on 9 March 2021

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

With the end of the tax year in sight, it's worth making sure you've done everything you can to save and invest tax efficiently – especially if you pay tax at a higher rate.

This includes making the most of your pension and tax relief allowances before the tax year-end deadline (5 April at 11.59pm).

But some of those who pay tax at a higher rate are missing out on the government's generous tax perks. An estimated £830 million in pension tax relief went unclaimed by high earners in the 2017/18 tax year alone.

We cover what you need to know about these tax perks, how to reclaim the money you could be owed, and what rules and limits to look out for.

Pension and tax rules can change, and benefits depend on your circumstances. Scottish tax rates and bands are different and other benefits apply.

Remember money in a pension can't normally be taken out until 55 (57 from 2028), when up to 25% is usually tax free with the rest taxable.

Pension tax relief explained

Paying into a pension is one of the most tax efficient ways to save for retirement, especially for higher and additional rate taxpayers. If you're a UK resident under 75, for anything you pay into a personal pension, like the HL SIPP, you'll automatically get 20% in pension tax relief from the government.

If you pay enough tax at a higher rate, you can claim up to a further 20% or 25%, subject to certain limits.

That means a £10,000 pension contribution could effectively cost you as little as £6,000 or £5,500, depending on whether you pay tax at the higher (40%) or additional rate (45%).

Try our tax relief calculator

How to claim higher rates of tax relief

Unlike basic rate tax relief, it's down to you to claim for anything over the basic 20% rate.

To make a claim, you'll need to contact HMRC. Most people claim through their tax return, but if you'd prefer you can write to your local Tax Office too. Any money you're owed will be paid back to you personally, rather than added to your pension.

If you think you could've been entitled to a higher rate of tax relief in previous years, the good news is you can still claim it back. The deadline is four tax years after the end of the tax year in which you're claiming. For example, the deadline for claiming tax relief for the 2016/17 tax year is 5 April 2021.

To claim, you need to write to your local tax office and confirm:

The tax year you're claiming for
That you're claiming for tax relief above the basic rate on personal pension contributions
The tax you've already paid for that tax year
Your bank account details for any due payments
Your signature

Download our guide to claiming higher-rate tax relief for more information.

Pension limits to watch out for

To get tax relief on your contributions, you can't pay in more than you earn. If your earnings are £3,600 or less, then you can pay in up to £3,600 (which includes the 20% tax relief from the government).

There's also an annual allowance of £40,000 for most people each tax year. If you'd like to pay in more to your pension, you might be able to carry forward unused allowances from the three previous tax years. This is known as the carry forward rule.

More on pension allowances and carry forward

Other rules to be aware of

If you've flexibly accessed your pension, your annual allowance will be reduced to £4,000 each tax year. Similarly, if you have an adjusted income of £210,000 or more, your allowance could be reduced to as little as £4,000. This is known as the tapered annual allowance.

Our annual allowance factsheet offers more information on the tapered annual allowance.

This isn't personal advice. If you're not sure what's best for you, please seek advice. All investments rise and fall in value so you could get back less than you invest.