Can I Claim Higher and Additional Rate Pension Tax Relief?
Are you earning over £50,270 and contributing to a pension? You could be owed money from the taxman. Find out how below.
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Am I Eligible For Higher Rate Tax Relief?
You can claim extra higher-rate and additional-rate pension tax relief if:
- ✔ You earn over £50,270, and
- ✔ You have made personal or employee contributions to a ‘relief at source’ pension scheme (such as Nest or any other SIPP provider).
This can boost your contributions by a substantial 25%! You can claim this relief either as a cash refund or as a reduction in your tax bill through your Self Assessment tax return.
WHAT IS HIGHER-RATE AND ADDITIONAL-RATE PENSION TAX RELIEF?
Higher-rate and additional-rate pension tax relief is extra relief available to those earning over £50,270 on their personal pension contributions. This is on top of the 25% basic-rate tax relief everyone gets when they contribute to their pension.
Higher-rate Taxpayers
- Higher-rate taxpayers can claim up to 40% in pension tax relief, meaning £10,000 in contributions could effectively cost only £6,000.
Additional-Rate Taxpayers
- Additional-rate taxpayers can claim up to 45% in pension tax relief, reducing the cost of £10,000 in contributions to just £5,500.
Many people miss out on this extra relief, with an estimated £830 million unclaimed each year. This is because, unlike basic-rate tax relief, you need to claim higher-rate and additional-rate tax relief yourself.
There’s another great benefit: this extra tax relief doesn’t have to go into your pension. You can use it to:
- ✔ Reduce your annual tax bill
- ✔ Adjust your tax code to lower your next year’s tax bill
- ✔ Get a tax rebate
How does higher-rate pension tax relief work?
Basic-Rate Income Tax Relief
Basic-rate income tax relief is granted to every taxpayer on their personal pension contributions, capped at the annual allowance of £60,000 or 100% of total earnings, resulting in a 25% increase in contributions.
Higher-Rate Income Tax Relief
For higher-rate taxpayers, an additional 20% tax relief is available on contributions, totaling 40% tax relief, in line with the 40% tax rate paid on earnings surpassing the higher-rate income tax threshold.
This supplementary relief operates similarly to basic-rate relief, effectively adding another 25% to contributions. Here’s a breakdown:
- • Deposit £1,000 into your pension, and the government adds £250.
- • You can then claim an additional £250 through your Self Assessment tax return or by contacting HMRC.
Factors Affecting Extra Tax Relief
The amount of extra tax relief depends on:
- • Your earnings
- • Your contribution amount
Specifically, you can seek 20% extra tax relief on earnings above £50,270 taxed at 40%, or 25% extra tax relief on earnings taxed at 45%.
How many years back can I claim pension tax relief?
Current legislation in the UK allows you to claim a tax rebate for up to four tax years. This means that at the current moment, you can make a claim for the periods:
- Year ending 5th April 2021
- Year ending 5th April 2022
- Year ending 5th April 2023
- Year ending 5th April 2024
