Pension Tax Relief
Introduction
The major advantage of saving into a pension is the return of income tax on your contributions, yet the majority of people entitled to reclaim relief at the higher rates do not do so, often unaware that it is their responsibility to inform HMRC.
Tax Relief at Source
Personal Pensions, SIPPs and many workplace pension schemes typically operate on the relief at source basis. This is where your provider automatically reclaims the basic rate of income tax within your pension and, if you pay tax above this rate, you are responsible for claiming the balance directly from HMRC.
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Incredibly, 75% of higher rate taxpayers and 50% of additional rate taxpayers fail to do this, resulting in an estimated £250m a year of unclaimed tax relief being left with HMRC.
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You are entitled to go back 4 tax years with your claim (in addition to the current tax year) and the calculator below shows the value of the higher rates of tax due for each of these years, based upon your earnings, contribution levels and the applicable tax rates/bands (intermediate, higher, advanced and top rate for Scotland, higher and additional rates for the rest of the UK).
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Please take into consideration the factors highlighted opposite when using this calculator. Higher rate taxpayers should submit their reclaim using the Government Gateway system and additional rate taxpayers should do so on their self assesment returns.
These includes public sector, defined benefit and some workplace pension schemes, where your contributions are made before the deduction of tax and so there is nothing to reclaim.
'Net Pay' Schemes
When you contribute via a salary sacrifice arrangement this is done before tax is taken and so there is nothing to reclaim.
'Salary Sacrifice' Arrangements
There is no income tax on any pension contributions your employer makes for you, therefore no tax to reclaim back.
Employer Contributions
Additional rate taxpayers with a 'Threshold Income' of £200,000 a year and 'Adjusted Income' greater than £270,000 will see a reduction in the amount they can contribute and receive tax relief on. Our calculator does not factor this in.