Claiming Tax Relief on Pension Contributions

6th July 2017


If you are a higher rate taxpayer and make payments into either an employer provided pension or a privately arranged pension are you claiming tax relief on the amount of your contributions? If the answer is no or you aren’t sure then read on.

How much tax relief can I get on my pension contributions?

The tax relief available on payments into a personal pension varies depending on whether or not you are a basic rate taxpayer (20%), a higher rate taxpayer (40%) or an additional rate taxpayer (45%). Paying into a personal pension plan or stakeholder scheme is treated as being paid net of basic rate tax (i.e. 20%) and by default your pension provider will automatically recover the 20% tax deduction from the government. This means for every £80 of your net income that you pay into the pension you actually get £100 in the pot. If you are basic rate taxpayer then you need do nothing further.

If you are a higher rate taxpayer or additional rate taxpayer you can claim further tax relief of up to 25% on top of the 20% already recovered on your behalf by your pension provider. This can be up to a further 25% depending on your income level. To claim this additional tax relief you must actually make a claim and this would normally be done via your self assessment tax return (if you complete one) or by contacting HMRC directly by telephone or in writing.

How much can I pay into a pension?

You can save and pay into a personal pension of up to 100% of your salary or other earned income but the amount of benefit you get in terms of tax relief is subject to both the amount of tax paid in the year and the ‘annual allowance’.

If you have no earnings you can still contribute up to £2,880 (net) per annum into a pension scheme and receive tax relief on that contribution (by a credit to your pension to bring the contribution up to £3,600 gross). If you pay more than £2,880 net in a tax year into your pension scheme you need to have earnings to at least match the amount paid otherwise no tax relief will be given on the excess over £2,880.

How much is the annual allowance?

The Annual Allowance is the amount set by HMRC. For the year 2017/18 the limit is set at £40,000 (gross) per annum. Please be aware that the annual allowance is by reference to both:

in respect of any pension input periods (PIP) ending in the tax year.

For those with total income in excess of £150,000 the annual allowance is restricted by £1 for every £2 of income above the threshold, the maximum restriction being £30,000.  This effectively means that an individual with income greater than £210,000 in a tax year has an annual allowance of only £10,000.

This information relates to defined contribution schemes only, defined benefit schemes [e.g. final salary schemes] are subject to different rules when it comes to ascertaining the increase in value in relation to the annual allowance. As these rules are complex it is not feasible to go into them in detail in this guide)

For tax years commencing 6 April 2011 onwards it has been possible to carry forward unused annual allowances from the previous 3 tax years. This means that potentially you could contribute up to £160,000 gross to your pension during the year ended 5 April 2018 if you have not made any payments into a pension over the previous three tax years. HMRC have published a handy calculator on their website that allows you to calculate the total unused annual allowances that are available to be used in a particular tax year, a link to the calculator and further information is available at

What is a Pension Input Period?

It is also important to be aware that the annual allowance does not necessarily relate to pension contributions paid in a particular tax year but instead it refers to pension contributions paid during the PIP ending in the tax year. For example if you opened the pension scheme on 1 February 2003 then your pension input period is the year ending 31 January. For the tax year ending 5 April 2018 your annual allowance relates to all contributions (personal or employer) paid into that pension plan in the year ending 31 January 2018.

What happens if I misjudge and exceed the annual allowance?

Should you pay amounts to your pension such that you exceed the annual allowance in a tax year and you have no unused allowance carried forward then there will be additional tax payable in that tax year so as to reduce the tax relief received down to that defined by the annual allowance.

I’m considering making a contribution to a pension, what should I do?

Pensions, particularly in light of the changes over recent years, are a complex area and this guide summarises the basic tax treatment of pension contributions as things stand at date of publication. This guide should not be used in any circumstances as a substitute for full and proper consultation with a qualified financial adviser. Before making any decisions regarding pensions or other investments we would strongly recommend seeking professional advice from a qualified financial adviser to ensure you are in full possession of all relevant and up to date information.

The method of claiming the tax relief is also slightly different in that any professional fees or subscriptions would normally be included as a deduction in your accounts each year. As such, a claim for tax relief would flow automatically when these figures are entered on your Tax Return unless you had any reason to disallow these costs for tax purposes.

I’ve paid into a pension but have never claimed higher rate tax relief. I need help!

If you need assistance with making a claim for tax relief in respect of payments that you have made to a pension feel free to give us a call today or email us at and we shall be happy to help.