Higher Earners Face New HMRC Rules for Pension Tax Relief: Don’t Lose Out on Your Claim

HMRC Rules for Pension Tax Relief: From September 1, HMRC has made it more difficult for people paying higher or additional rate income tax to claim extra pension tax relief. Before this, only those paying more than £10,000 in a year had to provide proof for their claim. Now everyone claiming higher pension tax relief must show evidence of what they contributed.

Charlene Young, senior pension and savings expert at AJ Bell, explained, “This means that anyone claiming for higher or additional rate tax relief (and the intermediate rate in Scotland) will need to speak to their pension provider for evidence of what they’ve paid into the scheme throughout the year.”

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Young added, “If you can’t find this when you login to your pension account, or through the provider’s app if they have one, then you may need to contact the pension company and ask them to send it to you. You’ll then need to supply this information to HMRC when you make a claim for the tax relief owed to you.”

The change comes as HMRC looks to tighten its processes and reduce gaps in tax collection. Gary Smith, financial planning partner at Evelyn Partners, said, “I can only presume that some type of internal audit has been undertaken within HMRC that has highlighted a potential issue, as some of those paying in lump sums could have been doing so with minimal checks of their calculations.”

According to Money week, Young warned, “The change is going to be a pain for some higher and additional rate taxpayers who are used to claiming already and who will now need to do some extra legwork.” But she also said it is a good reminder for everyone to check their pension arrangements and ensure they aren’t missing extra money owed to them. “Although it may feel like a faff, claiming what you’re owed could land you a rebate worth hundreds, or even thousands of pounds, from the taxman,” she added.

How Pension Tax Relief Works

For many people with workplace pensions, tax relief is handled automatically through ‘net pay’ schemes. Contributions are paid before tax, so employees already get relief at their marginal rate. That can be 20% for basic rate taxpayers, 40% for higher rate taxpayers, and 45% for additional rate taxpayers in most of the UK. Scottish taxpayers face slightly different rates.

Young said, “But if your employer offers a ‘relief at source’ pension scheme or you’re paying into a private pension yourself (for example a Sipp), then your contributions are paid in from taxed earnings. HMRC then adds 20% tax relief, but you’ll need to claim any tax relief owed to you above the 20% basic rate.” The UK’s largest workplace pension provider, Nest pensions, operates this way for its 13 million members.

Who Needs to Claim?

To claim, individuals first need to find out what type of pension scheme they are in. Young explained, “If you can’t tell from the information on your payslip what type of scheme you’re in then contact your employer or the pension provider and ask them to tell you.” Net pay schemes require no claim, but relief at source schemes need higher or additional rate taxpayers to submit a claim to HMRC to get the extra relief.

How to Claim and Avoid Issues?

People can claim pension tax relief via self-assessment or directly online if they don’t normally submit a tax return. They must provide their payroll details, tax year, and evidence of pension contributions. Young said, “Once the claim is processed you’ll either get that extra relief through your tax code adjustment, a tax refund, or an adjustment to your tax bill for the year.”

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Those affected are mostly higher earners who don’t usually complete a self-assessment tax return. Gary Smith said, “While the phone option has been taken off the table, I can’t see this being a great hardship as the options to apply directly by letter or – better still for those comfortable with digital services – online remain.”

Jon Greer, head of retirement policy at Quilter, advised, “To ensure you remain compliant with HMRC requirements and avoid any potential issues, it is important to take a proactive and informed approach. It is also advisable to review your PAYE coding notices regularly to ensure that any relief has been applied correctly. If you are unsure whether you need to make a claim or how to proceed, seek professional advice to clarify your position. As HMRC continues to tighten its processes, accurate record-keeping and early engagement will be essential to ensure you receive the relief you are entitled to.”