Many employed higher-rate and additional-rate taxpayers may be missing out on valuable tax relief on their pension contributions simply because they do not realise they may need to claim it themselves.
How pension tax relief works
This depends on the type of pension scheme your employer has. You first need to determine if it is a net pay or a relief at source scheme.
Net pay scheme
For those in a ‘net pay’ pension scheme, things are relatively straightforward. Your employer deducts pension contributions from your salary before tax is applied. As a result, you receive the full tax relief you are entitled to straight away. No further action is therefore required.
Relief at source scheme
The rules are different if you are in a ‘relief at source’ pension scheme – and it is an important distinction, as all personal and stakeholder pensions, and some workplace pensions, operate this way.
Under relief at source, pension contributions are made from take-home pay (after tax). The pension provider then claims basic-rate tax relief (20%) from HM Revenue & Customs (HMRC) and adds it to your pension pot.
However, if you pay more than basic-rate Income Tax, any additional tax relief is not applied automatically. Instead, it must be claimed separately, either through your Self Assessment tax return or by using HMRC’s online service. Telephone requests to HMRC are no longer accepted for personal pension relief claims.
The amount of tax relief available under the relief at source method depends on your Income Tax band. The gross pension contribution (the amount you pay plus the 20% topped up by HMRC) extends your basic rate band, the £100,000 bracket where your personal allowance is clawed back, and the additional rate bracket of 45%.
Can I claim higher rate tax relief for previous years?
Yes. You can backdate a claim for up to the last four tax years.
How M+A Partners can help
If you are unsure of your position when it comes to pension tax relief, our experienced team of tax specialists is here to help. As part of the tax return process, we review your pension contributions each year to ensure the correct relief is being claimed.
If you have any questions, or would like to discuss your situation in more detail, please get in touch with your usual M+A Partners’ contact, who will be happy to help.
