Pensions tax relief: why the taxman could owe you money

Savers are missing out on millions of pounds' worth of pension tax relief

(Image credit: Getty Images)

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What is pension tax relief?
Do I need to claim?
How to claim
Backdated claims
How those in the £100k tax trap can get 60% pension tax relief

Savers have just hours left to claim millions of pounds’ worth of pension tax relief from the government as the self-assessment deadline nears.

People have until 31 January to file their self-assessment returns online and declare any tax they owe for the 2024/25 tax year, but it is also an opportunity to claim any relief they’re due.

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However, hundreds of thousands of higher rate taxpayers could be missing out on an extra £1 billion by not claiming their fair share, according to new Freedom of Information (FOI) figures obtained from HMRC.

In addition, a further 19,000 additional rate taxpayers on the same type of pension plan failed to claim relief worth £2,195 on average.

Webb said: “With more and more people being dragged into higher rates of income tax, it is increasingly important that they claim all the tax relief to which they are entitled.”

What is pension tax relief?

To encourage people to save for retirement, HMRC gives tax relief on pension contributions. This is applied at your marginal rate – 20%, 40% or 45%.

Everyone can get tax relief when they pay into a pension, even children and people who aren’t working. However, there are limits on how much you can receive (imposed via the £60,000 annual allowance).

“It means that a £1,000 pension contribution for a basic-rate taxpayer only costs them £800,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.

“For higher and additional-rate payers, it is even more attractive with the same contribution only costing them £600 and £550 respectively.”

Do I need to claim pension tax relief?

If you are in a “net pay” pension scheme where pension contributions are made before you are taxed, you will automatically receive any tax relief you are owed without having to claim it.

However, if you are in a “relief at source” pension scheme (where contributions are made after tax is deducted), you may need to take action.

Although your pension provider will automatically claim tax relief on your behalf if you are in a “relief at source” scheme, they do this at the basic-rate level. This means you will only receive 20%, despite the fact that higher and additional-rate taxpayers are entitled to 40% and 45%, respectively.

If you are eligible for higher or additional-rate pension tax relief and haven’t claimed it yet, you can do so by filing a self-assessment tax return before the deadline on 31 January.

How to claim pension tax relief

If you are a higher or additional-rate taxpayer, the first thing you should do is check what kind of pension scheme you are paying into.

If your pension contributions are being paid into a net pay scheme, you don’t need to take any action. If you are paying into a “relief at source” scheme, you should file a tax return.

SIPPs and personal pensions generally fall into the “relief at source” category, as well as some workplace pension schemes. If you are unsure, check with your pension provider or employer.

“Many people assume the process of claiming higher or additional-rate pension tax relief is complicated, but in fact, it’s pretty straightforward,” says Rob Morgan, chief analyst at wealth management firm Charles Stanley.

He adds: “You can claim the tax relief on your self-assessment tax return by stating the gross amount of your total pension contributions for the tax year, including the 20% basic-rate relief already added.

“If you use the online service, HMRC calculates how much tax you have overpaid and then offsets any additional tax you owe against it.

“At the end of the process your net tax position for the year is adjusted. If you have overpaid, the balance can be refunded to your bank account as a tax rebate, or you can choose to pay less tax each month in the next financial year through a new tax code.”

You should consider paying the rebate into your pension (rather than keeping it in your bank account) to boost your retirement fund.

Backdated claims for pension tax relief

If you are panicking that you have never benefited from this extra tax relief on pension contributions, the good news is you can claim it for previous years. You can claim relief dating back four years, either through amending a previous tax return or contacting HMRC directly.

PensionBee has created a Pension Tax Relief Calculator to show savers how much tax relief could be added to their pension pot. If they’re not already receiving the full amount from their pension provider, it shows the portion they could claim back from the government.

How those in the £100k tax trap can get 60% pension tax relief

People with incomes over £100,000 can claim 60% pension tax relief on the amount up to £125,140, due to the fact the personal allowance is reduced by £1 for every £2 earned above £100,000.

Claiming pension tax relief on earnings in between this bracket, where people are hit by the “60% tax trap”, can also reduce someone’s income to below £100,000, making them eligible for free childcare hours or tax-free childcare.

Research by wealth management group Rathbones suggests tax relief claimed at 60% and then invested back into your pension can significantly boost your retirement pot.

It found someone making a £10,000 contribution to their pension, taken from earnings between £100,000 and £125,140, would get £5,000 in pension tax relief in one tax year.

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Laura Miller is an experienced financial and business journalist. Formerly on staff at the Daily Telegraph, her freelance work now appears in the money pages of all the national newspapers. She endeavours to make money issues easy to understand for everyone, and to do justice to the people who regularly trust her to tell their stories. She lives by the sea in Aberystwyth. You can find her tweeting @thatlaurawrites

With contributions from

Sam WalkerWriter