{"id":533765,"date":"2024-06-06T12:55:57","date_gmt":"2024-06-06T11:55:57","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=533765"},"modified":"2024-12-05T17:46:14","modified_gmt":"2024-12-05T17:46:14","slug":"tax-relief-on-pension-contributions","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/pensions\/tax-relief-on-pension-contributions","title":{"rendered":"Tax relief on pension contributions: How to claim"},"content":{"rendered":"

\u00a31.3 billion of pension tax relief went unclaimed in the 5 years ending in April 2021, according to analysis by the pension provider PensionBee<\/a>. If you\u2019re one of the huge number of eligible higher-rate taxpayers who routinely fail to claim tax relief on their pension contributions, it\u2019s time to discover what you\u2019re owed. Our case study, Tony, got \u00a31,800 \u2013 find out how he did it. <\/p>

What is pension tax relief?<\/h3>

There\u2019s a reason that pensions are touted as one of the best ways to save for your retirement. Every penny you save into a pension pot (up to an annual limit of \u00a360,000 in 2026\/2027) is eligible for tax relief<\/a>. <\/p>

If you\u2019re a basic-rate (20%) taxpayer, this means that for every \u00a380 of net pay (your take-home pay after tax) you contribute to a UK workplace or personal pension, you\u2019ll actually be saving \u00a3100 into your pension. If you pay tax at a higher rate than this, the benefits can be even greater. <\/p>

How does pension tax relief work?<\/h3>

There are 2 main ways in which you can automatically get tax relief on UK pension contributions. If you\u2019re in a workplace pension, your employer decides which method to use. If you pay into a personal pension, \u201crelief at source\u201d will be used \u2013 we explain this below. <\/p>

Net pay<\/h4>

Many but not all workplace pensions<\/a> use this. Your employer will deduct your agreed pension contribution from your gross pay, before any tax is deducted. So you\u2019ll pay tax on your earnings only after your pension contribution has been deducted. <\/p>

With this approach, you\u2019ll get the full amount of pension contribution tax relief you\u2019re eligible for, regardless of what tax rate you usually pay. <\/p>

Relief at source<\/h4>

With this approach, your pension contributions are either made by your employer after tax has been deducted from your pay or, if you\u2019re self employed, directly by you from your taxable earnings. <\/p>

Your pension provider will then claim basic-rate (20%) relief directly from the government. This will be added to your pension pot. If you live in Scotland and pay the 19% \u201cstarter rate\u201d tax, you\u2019ll still get 20% tax relief at source. <\/p>

This is where things get a bit trickier if you pay tax at a higher rate. With the relief at source method, you don\u2019t automatically get back the full amount of tax you\u2019ve paid above 20%. Instead, you\u2019ll need to apply for a tax rebate. <\/p>

What is a tax rebate on pension contributions?<\/h3>

A tax rebate on your pension contributions is where, if the correct tax relief (allowance) hasn\u2019t been applied via net pay or relief at source, you can claim back the tax on money you\u2019ve paid into your pension. <\/p>

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\"Tony\n <\/figure>\n\n <\/div>\n\n
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Case study: Tony got a \u00a31,800 rebate after writing to HMRC<\/div>\n
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\"I wrote a letter to HMRC in August 2023 to claim my rebate. In November 2023, I got a cheque for just over \u00a31,800.<\/p>

My advice is first to check with your company\u2019s HR team to see if you had a relief at source pension scheme for the years in question. If you\u2019re a UK employee paying higher-rate tax and you were paying relief at source at any point in the previous 4 years, or you\u2019ve contributed to a private pension in that period, and you haven\u2019t completed a self assessment (tax return), you could be owed a decent chunk of change.<\/p>

In my letter, I included my gross pension contributions for the tax years I was claiming for (what I contributed plus what the government added). You can get those details from your online pension account. And I added the total rebate figure \u2013 this is 20% of the total contributions over that period.<\/p>

There\u2019s no online way to claim for previous years \u2013 I had to send it by snail mail! HMRC took just short of 3 months to get back to me. They let me know via email and my online personal HMRC account once they\u2019d reviewed it (it\u2019s worth setting up an account if you don\u2019t already have one) and the cheque arrived a few days later. <\/p>

If there\u2019s one thing you\u2019d tell a friend who\u2019s thinking of getting this, what would it be?<\/strong><\/p>

For future years I\u2019d recommend submitting this info via a self assessment form at the end of each tax year.\"<\/p>\n\n <\/div>\n <\/div>\n\n

\n Tony May\n <\/div>\n
London<\/div>\n <\/div>\n <\/div>\n<\/div>\n

Download Tony\u2019s letter<\/a><\/p>

Who can claim a tax rebate on pension contributions?<\/h3>

There are several groups who may be able to claim a tax rebate on their pension contributions. <\/p>

Higher or additional-rate taxpayers contributing to a \u201crelief at source\u201d pension<\/h4>

This is the most common instance when people claim a tax rebate. If your workplace or personal pension uses the relief at source method, you\u2019ll automatically get just basic-rate (20%) tax relief applied. This means that if you pay tax at a higher rate, you\u2019ll need to claim back the extra. <\/p>

This applies to:<\/p>