How to Claim Pension Higher-Rate Tax Relief (FEB 2021)

Many taxpayers believe incorrectly that all of their pension tax relief is automatically credited to their pension pots. 

Those who usually do NOT have to claim higher-rate tax relief are members of occupational money purchase pension schemes. Their pension contributions are paid out of their salaries before tax is deducted, so full 40% tax relief is effectively granted immediately. 

Those who are affected include members of group personal pensions, group stakeholder pensions and group SIPPs. With these arrangements the contributions are made out of after-tax pay, so tax relief has to be actively claimed. Individuals with their own private pension plans also have to actively claim their higher-rate tax relief. 

Gross vs Net Contributions 

Another mistake made by higher-rate taxpayers when completing tax returns is entering net cash pension contributions (the amount they actually pay in), instead of their gross contributions (which include the taxman’s basic-rate tax relief top up). 

Page 4 of your tax return is for ‘Tax reliefs’. Box 1 asks for: Payments to registered pension schemes where basic rate tax relief will be claimed by your pension provider (called ‘relief at source’). Enter the payments and basic rate tax.

If you personally pay £4,000 into your pension and insert this number on your tax return, the taxman will give you £800 of higher-rate tax relief: £4,000 x 20% = £800. But if you enter the correct amount, which is £5,000 (£4,000/0.8), the taxman will give you £1,000 of higher-rate tax relief: £5,000 x 20% = £1,000. Do not include employer pension contributions. 

Backdated Claims 

If you have not claimed your higher-rate tax relief, the good news is you can make a backdated claim going back four years. Rebates can run to thousands of pounds. Write to your local tax office, outlining the gross contributions you have made and the tax years they relate to, or speak to an accountant. 

How to Claim Higher-Rate Tax Relief 

The standard way to claim higher-rate tax relief is when you submit your tax return. You can also claim it through an adjustment to your tax code. This allows tax relief to be provided immediately because less tax will be deducted from your salary each month. (A tax code is used by your employer to calculate the amount of tax to deduct from your pay. If you have the wrong tax code you could end up paying too much tax.) 

You can have your tax code adjusted by contacting HMRC and some pension companies provide template letters for this purpose. You may need to contact HMRC again if your pension contributions increase, for example if you get a pay increase or if you make one-off contributions during the year.

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