Claiming tax relief on pension contributions as a high rate taxpayer

As a basic rate taxpayer in the UK, you receive tax relief on your pension contributions at your income tax rate.

For basic rate taxpayers (20%), for every £80 you contribute to your pension, the government (HMRC) adds £20, effectively bringing your total contribution to £100.

If you are a higher-rate taxpayer, you can claim an additional tax relief of up to 25%. Tax relief is one of the biggest benefits of paying into a pension and is a considerable advantage compared to saving for your retirement via an ISA.

This includes when you are over the age of 55, and you have not started drawing a taxable income from your pension. Meaning any lump sum paid into your pension, the government will add 20%. 

If you have started drawing a taxable income, you will be subject to the money purchase annual allowance (MPAA). This restricts the tax relief to just £10,000 per annum.

You can only claim tax relief if you have already been taxed on the income. If your employer contributes towards your pension directly before deducting tax.

Under this arrangement, if you don't pay tax, you don't get tax relief, for example, because you earn less than the tax threshold.

For example, it is quite common for company directors of small limited companies to minimise income tax obligation and pay only a salary up to the personal allowance and the limited company would pay into a director's pension directly. The director would not be eligible for tax relief as the pension has not formed part of their salary.

Can I claim tax relief for previous tax years? 

Yes, you can go back 4 years.

What are the limits on pension tax relief? 

The limit is dictated by your annual allowance.

From 6 April 2023, the annual allowance increased from £40,000 to £60,000. and the old lifetime limit of £1,073,100 was abolished. 

The pension annual allowance applies across all your pensions, not per pension pot. If you exceed it, a tax charge is made, which takes back any tax relief.

Income tax bands England, Wales & Northern Ireland

The table below shows the 2023 to 2024 England & Wales income tax rates.

Band	Taxable income	Tax rate
Personal Allowance	Up to £12,570	0%
Basic rate	£12,571 to £50,270	20%
Higher rate	£50,271 to £125,140	40%
Additional rate	over £125,140	45%

 

Higher rate

You are a resident of England, Wales & Northern Ireland, and you earn £70,000 in the 2023 to 2024 tax year and pay 40% tax on £20,000. You put £25,000 into a private pension. 

You will automatically get tax relief at source on the full £25,000. (20% is applied to the whole amount).

You can claim an extra 20% tax relief on the £20,000 that was taxed at the higher rate by using your Self Assessment tax return. However, you won’t receive any additional relief on the remaining £5,000 of your pension contribution.

Additional rate

You are a resident of England, Wales & Northern Ireland, and you earn £140,000 in the 2023 to 2024 tax year and pay 40% tax on £75,000 and 45% on £15,000. You put £25,000 into a private pension. 

You automatically get tax relief at source on the full £25,000. (20% is automatically applied to the whole amount).

You can claim an extra 20% tax relief on £25,000 (the same amount you paid a higher rate tax on) through your Self Assessment Tax Return and an additional 25% on £15,000.

Effective tax relief for higher-rate taxpayers 

Making a pension contribution with lower rate tax relief is like getting a boost of around 25% on the amount you pay. For higher rate tax payers, this is an effective pension boost of 66%. So in terms of value for money, higher-rate pension contributions really are an incredible option. 

For basic rate taxpayers (20%), for every £80 you contribute to your pension, the government (HMRC) adds £20, effectively bringing your total contribution to £100.  For the higher rate taxpayers (40%), for every £60 you contribute to your pension, the government (HMRC) adds £40, effectively bringing your total contribution to £100. 

Income tax bands in Scotland

The table below shows the 2023 to 2024 Scottish income tax rates.

Band	Taxable income	Tax rate
Personal Allowance	Up to £12,570	0%
Starter rate	£12,571 to £14,732	19%
Basic rate	£14,733 to £25,688	20%
Intermediate rate	£25,689 to £43,662	21%
Higher rate	£43,663 to £125,140	42%
Top rate	over £125,140	47%

 

Intermediate and higher rate

You are a resident of Scotland and you earn £70,000 in the 2023 to 2024 tax year.  

You pay 21% tax on £18,000 and 42% on £27,000. You put £25,000 into a private pension. 

You automatically get tax relief at source on the full £25,000. (20% is applied to the whole amount).

You can claim an extra 1% tax relief on £18,000 (intermediate rate). You can claim an extra 22% on £27,000 (higher rate) through your Self Assessment Tax Return.

Get Expert Advice

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Let Regulated Advice match you with a financial advisor for expert advice.