Brits earning over £50,271 issued pension tax claim warning (Image: Getty)
Higher-earning Brits have been urged to claim the pension tax relief owed to them, as millions of pounds worth of the perk goes untapped every year. Described as the « hidden hero » of pensions, tax relief is a Government incentive to boost people’s retirement savings by giving them back the income tax paid on their contributions.
The alert comes ahead of HM Revenue and Customs’ (HMRC) self-assessment tax return deadline on January 31, which the self-employed and those who receive additional income must meet. Eligible taxpayers who contribute to pensions can also use the form to claim any extra tax relief due. Lisa Picardo, chief business officer UK at PensionBee, said: “It’s estimated that over five million taxpayers are yet to fill out their self-assessment form for the previous tax year, so getting your ducks in a row before January 31 is crucial. » She added: « For many, completing a tax return could unlock unexpected pension benefits. If you’ve changed jobs, started self-employment or entered a higher tax bracket, filing ensures you don’t leave valuable tax relief unclaimed. »
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The alert comes ahead of an important HMRC deadline. (Image: Getty)
The amount of tax relief you get depends on how much you earn, and it’s not always applied automatically.
Basic-rate taxpayers – people earning between £12,570 and £50,270 – receive 20% tax relief automatically. Higher-rate taxpayers can claim up to 40% tax relief, while additional-rate taxpayers can claim up to 45% relief.
To put the savings into perspective, higher-rate taxpayers would pay £6,000 for a £10,000 pension contribution, while additional-rate taxpayers would pay £5,500.
However, if higher-rate and additional-rate taxpayers are paying into a « Relief at Source » pension, they must claim the extra 20% and 25% tax relief.
Many people eligible to claim seem unaware they need to do so, as a significant amount of relief goes untapped every year.
In the five-year period between 2016 and 2021, PensionBee estimates that around £1.3billion in unclaimed tax relief was left to HMRC by higher and additional rate taxpayers.
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Ms Picardo said: « If you earn more than £50,270 and pay into a ‘relief at source’ pension, you might need to fill out a Self-Assessment return to claim your extra tax relief, which is estimated to be £425 on average for a higher rate taxpayer.
« Higher-rate taxpayers can claim up to 40% total tax relief, and additional-rate taxpayers up to 45% total tax relief. »
To claim tax relief on pension contributions, total contributions must be within the standard annual allowance of £60,000 for the 2024/25 tax year. This reduces to an amount between £10,000 and £60,000 if you earn over £200,000, known as the tapered annual allowance.
Savers who exceed the annual allowance can use the « carry forward » rule to apply unused allowances from the previous three tax years.
Ms Picardo said: « This can be particularly beneficial if you’ve had a lower income in previous tax years or if you’ve recently experienced a spike in earnings. »
To use carry forward, you must have been a member of a UK-registered pension scheme in the tax years you wish to carry forward from.
PensionBee’s tax relief calculator can help those unsure if they need to claim, and how much they can claim.
Ms Picardo said: “Our tax relief calculator can help provide clarity on how much tax relief could be added to your pension pot, and help you understand whether or not you may need to file a Self-Assessment tax return to claim a portion of it.”
It’s important to note that higher and additional-rate taxpayers who have a Net Pay Arrangement or use Salary Sacrifice to contribute to a pension do not have to claim the relief.
In some cases, higher and additional-rate taxpayers must claim the extra tax relief due (Image: Getty)
HMRC no longer accepts claims for extra relief over the phone, requiring taxpayers instead to apply online or by letter. It comes after the tax office launched a crackdown on the pension tax relief system last summer, following a significant number of inaccurate claims.
Officials said mistakes commonly involved people who were not higher-rate taxpayers submitting claims, misreporting contributions, or applying for relief on pensions already covered by “net pay” arrangements.
The changes mean more taxpayers will be asked to supply proof of eligibility for claims, even at lower amounts.
Latest figures from HMRC show pension tax relief saved Brits an estimated £32.3 billion in the 2024/25 tax year. This figure has rapidly grown in recent years, rising from £25billion in 2020/21.
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown, said: “Tax relief is very much the hidden hero of pensions, and this data shows just how much. »
She added: « Pension tax relief is a powerful incentive to save into a pension. It means a basic-rate taxpayer contributing £80 will have it boosted to £100 by tax relief. A higher-rate taxpayer needs to contribute just £60 to get the same boost to £100.
« With the self-assessment deadline looming on the horizon, it is an important reminder for higher and additional rate taxpayers to make sure they aren’t missing out on claiming their full rate of tax relief on their pensions. They can claim any extra relief either online or through their self-assessment forms. »
