Higher rate pension tax relief

Pension tax relief is the money you receive on top of your regular contributions by the government as an incentive for paying into a pension. Tax benefits are however, subject to change, and depend on the individual’s circumstance.

There are two bases on which your contributions can receive tax relief:

• net pay arrangement
• Relief at Source (RAC)

Only employer-sponsored schemes who sign up to use it can use the net pay arrangement basis. Personal pensions all use the Relief at Source basis of tax relief.

In a Relief at Source scheme, tax relief at basic rate is claimed by the scheme from HMRC and added to your contribution. So, for every £1 you pay in, the government will add 25p, via your pension scheme.

Employer-sponsored schemes can also use the net pay arrangement to give tax relief on employee (personal) contributions. In this case, your contributions are deducted from your pay before tax is calculated. This means that you get any tax relief you are due before the contribution reaches the pension scheme, through the payroll tax process.

Find out more about pension tax relief.

The government provide tax relief on payments as an incentive for people to think about their future retirement. By promoting this, the government is aiming for long-term financial security to work alongside the state pension.

As a higher rate taxpayer in a relief at source scheme, you are entitled to more tax relief than the basic rate. You’re able claim back a further 20% of your payments, so it can look something like this –

The principle is still the same if you pay tax at different rates, such as additional rate in England, Wales and Northern Ireland, and at one or more of the relevant rates in Scotland: you will need to claim the extra part directly. The amount of tax relief that goes into the scheme will be the same, but you will get a different amount of money off your tax bill.

If you are a higher rate taxpayer, you can claim back a further 20% of your payments, but it’s something you need to do through your self assessment tax return which you must complete yearly with HM Revenue and Customs (HMRC). 

If you have been paying tax at a rate higher than 20% in previous tax years, and paying personal contributions into a Relief at Source scheme, you can claim additional tax relief you've missed out on.

There is a time limit for how many years you can claim back on – you can only revise your self-assessment tax returns for the last four tax years, to claim any additional tax relief you've not yet received.

If the provider agrees, anyone can pay into your pension.  But remember - the member gets the tax relief, not the payer. So, if you pay into your child's pension, they get the tax relief, and it doesn't affect the amount of higher or additional rate tax you pay.

If someone else pays into your pension, remember to claim any higher or additional rate tax relief you're due. Also, remember to tell them how much annual allowance you've already used, as you'll be liable for any annual allowance charge due if their contribution means a charge is payable.