How Much Can I Claim in Higher Rate Pension Tax Relief Each Year

This guide explains how much higher rate pension tax relief you can claim each year including annual allowance rules, earnings limits, and higher rate band calculations.

At Towerstone, we specialise in higher rate pension tax relief advice and have written this article for higher rate taxpayers estimating refunds. The purpose of this article is to explain what you can claim and what limits apply, helping you make informed decisions.

Higher rate pension tax relief is one of the most generous and effective tax planning tools available in the UK. It helps you reduce your tax bill, boost your pension savings, and lower your adjusted net income which can help restore your personal allowance or protect your Child Benefit. Despite this many people do not know how much relief they can claim, how the limits work, or how the rules apply to their income level.

The amount of higher rate relief you can claim each year depends on your taxable income, the type of pension contributions you make, whether you pay tax at 40 percent or 45 percent, your annual allowance, and whether you can use carry forward. In my opinion higher rate pension relief is one of the simplest ways to save thousands in tax if you understand the rules.

This guide explains how much higher rate relief you can claim, how the limits work, how contributions are calculated, the interaction with the annual allowance, and how to maximise your tax relief in a safe and compliant way.

What Higher Rate Pension Relief Actually Is

Before calculating how much relief you can claim it helps to understand how pension relief works.

There are three types of pension contribution systems:

Relief at source

Used by personal pensions such as SIPPs and many workplace schemes.

  • You pay 80 percent

  • Pension provider claims 20 percent from HMRC automatically

  • If you are a higher rate taxpayer you claim the extra 20 percent yourself

  • If you are an additional rate taxpayer you claim an extra 25 percent

Net pay arrangements

Used by some workplace pensions.

  • Contributions are deducted before tax

  • Higher rate relief is automatic

  • Nothing extra to claim

Salary sacrifice

A very efficient employer arrangement.

  • Salary is reduced

  • Employer pays that amount to your pension

  • Income reduces before tax and National Insurance

  • Higher rate relief is automatic

This guide focuses on how much you can claim when you use the relief at source method because that is the system where you need to reclaim higher rate relief yourself.

The Maximum Higher Rate Pension Relief You Can Claim Each Year

There are two main limits:

  1. The annual allowance

  2. Your relevant earnings limit (for personal contributions)

Once these two limits are understood it becomes clear how much higher rate relief you can receive.

1. The Annual Allowance (2024 to 2025)

The annual allowance is £60,000 per tax year.

This includes:

  • Your contributions

  • Employer contributions

  • Basic rate relief added at source

  • Any additional tax relief you claim

This means your total pension input cannot normally exceed £60,000 unless:

  • You use unused allowances from the previous three tax years

  • Your allowance is tapered due to high income

Carry forward

You can bring forward unused allowances from the past three years provided you:

  • Were a member of a UK pension scheme during those years

  • Have enough earnings to support the contribution if paying personally

Carry forward can create tax efficient contributions of £100,000 to £180,000 depending on past allowances.

Tapered annual allowance

If your adjusted income exceeds £260,000 your annual allowance may taper down as low as £10,000. Pension contributions can sometimes be used to bring your income below this level and restore your full allowance.

2. Your Relevant Earnings Cap

Your personal contributions cannot exceed your relevant earnings for the year unless you use:

  • Employer contributions

  • Salary sacrifice

  • Carry forward with employer support

Relevant earnings include:

  • Salary

  • Bonus

  • Commission

  • Self employed profits

Relevant earnings do not include:

  • Dividends

  • Rental income

  • Investment gains

Example

You earn £35,000 salary and £20,000 dividends.
Your relevant earnings cap is £35,000.
You cannot personally contribute more than £35,000 gross into a pension.
Your company could contribute more if it is a limited company director.

How Higher Rate Relief Fits Within the Limits

Higher rate relief does not have its own separate ceiling. The limit is defined by:

  • How much you contribute

  • Whether you have enough relevant earnings

  • Your annual allowance position

Example

You contribute £10,000 gross into a SIPP.
You are a higher rate taxpayer.
You receive:

  • £2,000 basic rate relief from the provider

  • £2,000 higher rate relief via Self Assessment

Total tax relief = £4,000
Your personal cost = £6,000
Your pension input = £10,000

So how much higher rate relief can you claim

Technically you can claim:

  • 20 percent on contributions that fall into the 40 percent tax band

  • 25 percent on contributions that fall into the 45 percent tax band

There is no fixed monetary limit on the higher rate element beyond the annual allowance.

The Practical Maximum Higher Rate Relief You Can Claim

To understand the real world maximum think of the tax bands.

Basic rate band

£12,571 to £50,270

Higher rate band

£50,271 to £125,140

The higher rate band covers:

£74,870 of income

If all of that income were subject to higher rate tax and you contributed enough pension to offset it all you would unlock:

  • 20 percent relief at source

  • 20 percent additional higher rate relief
    on up to £74,870 of gross pension contributions

This is £14,974 of higher rate relief plus £14,974 of basic rate relief.

Additional rate band

Income above £125,140

If you contribute enough to drop income out of the additional rate band you unlock 25 percent additional relief rather than 20 percent.

This is why high earners often receive extremely large tax rebates through pension planning.

Important: You Claim Higher Rate Relief Only on the Portion of Your Income in the Higher Rate Band

This is the key principle.

Example 1

Income: £60,000
Portion in higher rate: £9,730
You can only claim higher rate relief on pension contributions up to £9,730 gross.

Example 2

Income: £90,000
Portion in higher rate: £39,730
You can receive higher rate relief on up to £39,730 gross contributions.

Example 3

Income: £150,000
Portion in higher rate: £74,870
Portion in additional rate: £24,860
Your maximum higher rate relief is on £74,870
Your maximum additional rate relief is on £24,860

This structure is crucial for tax planning.

How Much Higher Rate Relief You Can Claim in Salary Sacrifice

Salary sacrifice gives the equivalent of higher rate relief automatically because:

  • Your taxable pay is reduced

  • You pay less tax

  • You pay less National Insurance

  • Your employer pays less NI

There is technically no limit except:

  • Employer agreements

  • Annual allowance

  • Tapered allowance rules

In my opinion salary sacrifice is one of the most efficient routes for higher rate earners.

How to Tell Exactly How Much Relief You Can Claim

Follow these steps:

Step 1: Calculate your total taxable income

Include salary, bonuses, rental profit, dividends, and self employed income.

Step 2: Identify how much falls into the higher rate band

Income above £50,270 and below £125,140.

Step 3: This amount is your maximum potential higher rate relief

You cannot claim higher rate relief on income that stays in the basic rate band.

Step 4: Compare with annual allowance

Even if you have £30,000 of higher rate income you cannot contribute more than £60,000 gross unless using carry forward.

Step 5: Apply earnings cap if self employed or contributing personally

Personal contributions cannot exceed relevant earnings.

Step 6: For SIPPs claim via Self Assessment

Any excess relief is refunded or used to reduce your tax bill.

Examples

Example A: Full time employee

Income: £65,000
Higher rate portion: £14,730
Maximum higher rate relief: 20 percent of £14,730 = £2,946

Example B: Company director

Salary: £12,570
Dividends: £70,000
Higher rate portion: £32,300
He can claim higher rate relief on personal contributions up to £12,570 gross, because this is his relevant earnings.
His company can contribute much more as employer contributions without being limited by relevant earnings.

Example C: High earner using salary sacrifice

Income: £110,000
He sacrifices £25,000
Taxable income becomes £85,000
He removes £25,000 from the higher rate band and does not need to claim via Self Assessment.

Example D: Parent avoiding the Child Benefit charge

Income: £55,000
Personal pension contribution: £4,000 net (£5,000 gross)
Adjusted net income becomes £50,000
All Child Benefit is restored
Higher rate relief is claimed on the portion of gross pension that falls into the 40 percent band.

Final Thoughts

The amount of higher rate pension tax relief you can claim each year depends on how much of your income falls into the higher rate or additional rate bands, your annual allowance, your relevant earnings limit, and whether you use salary sacrifice or personal contributions. There is no separate cap on higher rate relief itself. The limits come from the pension system rather than from a standalone rule.

In my opinion anyone earning between £55,000 and £150,000 should review their pension contributions annually because well timed pension planning can save thousands in tax, restore allowances, increase long term retirement wealth, and prevent entering hidden tax traps. Once you understand how the tax bands interact with pension contributions the system becomes far easier to navigate and far more rewarding.

If you would like to explore related pension guidance, you may find Is higher rate pension tax relief worth it compared to ISAs and What evidence do I need to claim higher rate pension tax relief useful. For broader pension guidance, visit our pensions knowledge hub.