What is higher rate tax relief?

Tax relief is the principle that all the income you pay into a pension scheme should be exempt from income tax. But because income tax is usually paid at source (via PAYE if you’re an employee), this money is repaid to you on every pension contribution you make.

Basic rate relief of 20% is automatically added to your pension contributions and paid directly into the fund.

But, if you are a higher rate taxpayer, things aren’t that simple. You’ll be paying 40% tax on all your income over the higher-rate threshold. But you will only automatically get 20% relief, you must claim the extra 20%.

How do I claim higher rate tax relief?

Unlike basic rate 20% tax relief, you will need to actively claim the further 20% higher rate tax relief on your pension contributions.

We can do this for you. We will work out what further tax relief you are entitled to, contact HMRC on your behalf and negotiate with them for you.

Your relief will either be supplied as a rebate, a reduction in your tax liability or a change to your tax code.

Can I claim tax relief for previous years?

Yes. You can make backdated claims for higher rate tax relief on your pension contributions, but there is a time limit. You can claim back any tax relief for the last four tax years.

So it is important that you take action quickly to ensure that you do not lose out on your entitlement.

What are the limits on pension tax relief?

There is a cap on the level of tax relief you can receive. Your annual allowance (or the highest amount you can put into your pension each year) is currently £40,000 or 100% of your qualifying earnings. This means you can only receive tax relief on this amount.

How does claiming help my pension in the future?

As well as a rebate for historic unclaimed relief, going forwards by claiming the further relief, you can make your pension savings up to twice as rewarding as saving on a basic-rate income. Claiming all available tax reliefs is an important way of ensuring you are getting the most value out of your pension contributions.

In practical terms, making a pension contribution with higher-rate tax relief is like getting a boost of around 66% on the amount you pay in. Why 66%, when higher-rate tax is only 40%? This is because of how percentages work. For instance, if you pay 40% tax on £100 it is reduced to £60. But if you then pay that £60 into a pension, the income tax is repaid – making it up to £100 again. And £60 turned into £100 is an increase of (roughly) 66%. So in terms of value for money, higher-rate pension contributions really are hard to beat.

What are your fees?

You only pay us if we are successful in securing you a rebate, a reduction in your tax liability or a change in your tax code.

These things (rebate, reduction in tax or change in tax code) are financial ‘benefits’ that we obtain for you by bringing your claim to HMRC.

If we obtain one or a combination of these benefits for you then you would pay us for the work we have done. Our fee is 35% plus VAT of the financial benefit which we have obtained for you.