Are You Missing Out on Higher Rate Pension Tax Relief?
Higher rate pension tax relief is commonly misunderstood. There are two types of structures used for paying into your personal pension: Relief at Source, and Net Pay.
If Relief at Source is used, only 20% tax relief is added automatically. If Net Pay is used, the payments are made before tax and other deductions from your pay, giving you full tax relief.
If you are a higher rate taxpayer paying in via Relief at Source, then additional tax relief often needs to be reclaimed through HMRC directly – every year – and thousands of people don’t realise it.
Why Pension Tax Relief Gets Missed
Many higher rate taxpayers paying into a Relief at Source scheme incorrectly assume pension tax relief is automatic. Unfortunately, HMRC do not inform you of this and unless a professional tax advisor completes your annual Self-Assessment, for example, you may not know you are eligible. Not sure of the difference between Relief at Source vs Net Pay? Check here.
There are various reasons why pension tax relief gets missed:
You pay higher-rate or additional-rate tax
If you’re in the 40%, 45% or Scottish higher bands, you may not be aware of the eligible relief.
Your pension uses Relief at Source
These pensions only add 20% relief automatically.
You’ve never reclaimed the extra relief
If you haven’t told HMRC about your contributions, you may continue to lose out.
Your income changes during the year
Bonuses or promotions can push you into a higher band without claiming the additional relief.
Your employer doesn’t use a net pay scheme
Only net pay schemes give full relief through payroll.
You live in Scotland
Scottish bands differ from the rest of the UK — many taxpayers are owed extra relief.
How to Reclaim Higher Rate Pension Tax Relief
The reclaim process is simpler than most people expect. Here’s a quick overview of how it typically works.
Confirm your tax band
Check pension type
Add up contributions
Tell HMRC
Check If You Could be Owed Higher Rate Pension Tax Relief
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