Are You Missing Out on Pension Tax Relief?

Recent information obtained through a Freedom of Information request suggests that around 800,000 higher-rate taxpayers with personal pensions or other “relief at source” arrangements may be failing to claim the full tax relief they are entitled to.

With more people being pulled into higher-rate tax due to frozen tax thresholds, this is an issue that is only likely to grow.

How Pension Tax Relief Works

Most personal and workplace pensions operate under a relief at source system. This means:

• Your pension provider automatically claims basic rate tax relief (20%) from HMRC
• For every £80 you pay in, £100 ends up in your pension

However, if you are a higher-rate or additional-rate taxpayer, you are entitled to extra tax relief on your pension contributions, which is not added automatically.

The Common Problem

Many higher-rate taxpayers assume that because:

• Their tax is otherwise correct under PAYE, and
• They don’t normally complete a self-assessment tax return

…there is nothing further they need to do.

In reality, this means many people are missing out on hundreds or even thousands of pounds of additional tax relief each year.

This issue particularly affects:

• Employees who have recently become higher-rate taxpayers
• Individuals with personal pensions alongside workplace schemes
• Those whose PAYE tax code is otherwise accurate

Do You Have to Complete a Tax Return?

Not necessarily.

While completing a self-assessment tax return is one way to claim higher-rate pension tax relief, it is not the only option.

If you don’t normally file a tax return, you can still claim the extra relief by:

• Contacting HMRC directly (by phone or letter)
• Completing an online application available at: https://www.gov.uk/guidance/claim-tax-relief-on-your-private-pension-payments
• Providing details of your gross pension contributions

HMRC can then:

• Issue a refund, or
• Adjust your tax code to give relief going forward

This is something many people are simply unaware they need to do.

Why This Matters More Than Ever

With frozen income tax thresholds, more people are:

• Paying higher-rate tax for the first time
• Making pension contributions without realising extra relief is available

Over time, unclaimed pension tax relief can significantly reduce the effectiveness of retirement saving — particularly for those making regular personal pension contributions.

What Should You Do Now?

If you:

• Pay higher-rate tax, and
• Contribute to a personal pension or other relief-at-source arrangement

…it may be worth checking whether you are claiming all the tax relief you are entitled to.

This applies even if:

• You don’t normally complete a tax return
• Your PAYE tax position is otherwise correct

Final Thoughts

Pension tax relief is one of the most valuable incentives available to savers, but it isn’t always as automatic as people expect. Ensuring you are claiming the correct level of relief can make a meaningful difference to your long-term retirement outcomes.

Tax rules are complex, and individual circumstances vary, so this article is intended as general guidance only.