One of the biggest perks of paying into a pension scheme is tax relief on the contributions that you make.
What tax relief should I receive on my contributions?
Tax relief is given at the highest rate of tax that you pay, so:
- Basic rate tax payers should get 20% pension tax relief
- Higher rate tax payers should get 40% pension tax relief
- Additional rate tax payers should get 45% pension tax relief
Will I get full pension tax relief?
Many people assume that they will get full tax relief on their workplace pension contributions. However, millions of pounds of pension tax relief are unclaimed by higher and additional rate tax payers.
This is because the amount of automatic relief you get all depends on which type of pension scheme your employer operates.
How can I check if I am getting full relief on my contributions?
To confirm whether you are getting full relief, you need to find out from your employer what type of pension scheme you are in.
If it’s a Net Pay Arrangement, then your pension contribution is deducted from your Gross Salary before the tax is calculated, meaning you get full relief at your highest rate of tax on your pension contribution.
However, if it’s a Relief at Source pension scheme, your pension contributions are taken from your net salary after tax has already been deducted. The pension contributions are paid into the pension scheme by your employer and the pension scheme will claim the 20% basic rate tax relief from HMRC. Higher and additional rate tax payers will only get the extra relief due to them if they make a claim to receive this.
Do many pension providers operate Relief at Source pension schemes?
A number of well-known pension providers only operate Relief at Source schemes. This means that unless the tax-payer has claimed the additional relief due to them, they will only receive the 20% basic rate tax relief.
So it’s essential to check which kind of scheme you are in to ensure you’re not missing out on your full tax relief.
Can I claim relief for previous tax years?
If you’ve missed out on claiming the additional tax relief that you are due, you’ll be glad to know that you can make a claim now, going back several years. It’s definitely work doing, and I have recently seen taxpayers recover thousands in previously unclaimed pensions tax relief.
If you need any further help with this, or any other issue, please contact me.