If you're a higher rate taxpayer, there's a good chance you could be missing out on unclaimed tax relief worth hundreds-if not thousands-of pounds a year. Many people mistakenly believe their pension tax relief is fully automatic, but that’s not the case for everyone.

What Is Pension Tax Relief?

Pension tax relief is a government incentive that encourages people to save for retirement by giving them back some of the income tax they’ve paid on their pension contributions. In simple terms, when you pay into a pension, the government tops up your contribution by the amount of tax you would have paid on that money, effectively making it cheaper to save.

For example, if you're a basic rate taxpayer (20%) and you contribute £80 into your pension, the government adds £20, so £100 goes into your pension pot.

If you're a higher rate taxpayer (40%) or additional rate taxpayer (45%), you’re entitled to even more tax relief- but here’s the catch: only the first 20% is automatically claimed by your pension provider. You’ll need to claim the rest yourself through a self-assessment tax return.

How Pension Tax Relief Is Claimed?

For most workplace and personal pensions, basic rate tax relief (20%) is automatically applied using a method called relief at source. This means when you contribute to your pension, your provider automatically adds the 20% tax you’ve already paid. So, if you want to contribute £100, you only need to pay in £80, the government adds the extra £20.

However, if you’re a higher rate (40%) or additional rate (45%) taxpayer, you’re entitled to more tax relief, but here’s the important part:

You must claim the extra relief yourself through a self-assessment tax return.

If you don’t complete a self-assessment, or if you leave out your pension contributions, you could be missing out on hundreds or even thousands of pounds each year in unclaimed tax relief.

Why Higher Rate Taxpayers Miss Out

Despite being entitled to extra tax relief, a surprising number of higher rate taxpayers never claim it, and it’s often down to simple misunderstandings:

• They don’t realise they need to act: Many people assume tax relief is handled automatically, not knowing that anything above the basic 20% must be manually claimed.
• They don’t complete a self-assessment tax return: If you’re employed and taxed through PAYE, you might never have had a reason to file one. But without it, HMRC has no way of knowing you’ve made pension contributions that qualify for extra relief.
• They assume their pension provider takes care of it: While providers claim the 20% basic rate on your behalf, they can’t claim the higher or additional rate, that’s your responsibility.

What About Salary Sacrifice Schemes?

There’s one key exception: if your employer offers a salary sacrifice pension scheme, it works differently.

In these arrangements:

• Your salary is reduced before tax and National Insurance.
• Your pension contribution is made by your employer on your behalf.
• You receive the full pension tax relief automatically - so there’s no need for self-assessment.

But remember, not all employers offer salary sacrifice, so it’s worth checking how your pension contributions are made.

The Shocking Scale of Unclaimed Tax Relief

£1.3 Billion Left Unclaimed Over Five Years

Between 2016/17 and 2020/21, UK higher and additional rate taxpayers failed to claim a total of £1.3 billion in unclaimed tax relief, an average of £260 million every year.

In the 2020/21 tax year alone:

• Around 574,000 higher rate taxpayers
• And 28,000 additional rate taxpayers did not claim the extra pension tax relief they were owed.

On average, higher rate taxpayers missed out on £425 each. Additional rate taxpayers lost around £527 Left unchecked, this could mean tens of thousands in lost retirement savings over a lifetime.

Check Your Pension Contributions Today

If you're a higher rate taxpayer, take a moment to:

• Review your pension contributions
• Check whether you’re using salary sacrifice
• Submit a pension self-assessment if you’re not getting full tax relief

It’s simple to correct- and the potential reward could be thousands added to your pension pot.