What is higher rate pension tax relief and how does it work?

This guide explains what higher rate pension tax relief is, how it works, which pension schemes give relief automatically and when you must claim extra relief from HMRC.

Higher rate pension tax relief is one of the most generous and valuable tax benefits available to people in the UK, yet it is also one of the least understood. I have spoken to many higher earners who do not realise they are entitled to extra relief on their pension contributions or who assume their employer has already handled it. In my opinion higher rate pension relief is one of the simplest ways to increase the real value of your pension contributions and reduce your overall tax bill, but only if you understand how the rules work.

This guide explains what higher rate pension tax relief is, who gets it, how it works under different pension schemes, how to check whether you have received it, and what you need to do if your contributions require a manual claim. I also include examples, common mistakes and practical steps so you can make the most of this important tax benefit.

What is higher rate pension tax relief?

Pension tax relief is the government’s way of encouraging people to save for retirement. When you pay money into a pension you receive tax relief at your highest rate of income tax.

The current income tax rates are:

  • 20 percent basic rate

  • 40 percent higher rate

  • 45 percent additional rate (top earners)

Higher rate pension relief means:

If you pay tax at 40 percent you are entitled to 40 percent relief on your pension contributions. If you pay tax at 45 percent you are entitled to 45 percent relief.

Example

You want to contribute £100 to your pension.

  • As a basic rate taxpayer you pay £80 and the government adds £20

  • As a higher rate taxpayer you should pay £60 and the government contributes the remaining £40

  • As an additional rate taxpayer you should pay £55 and the government contributes £45

This relief can be delivered automatically through payroll or it can require a claim depending on the pension scheme you use.

In my opinion most people misunderstand pension relief because the way it is delivered varies significantly.

How higher rate pension relief works

The way your tax relief is given depends entirely on how you make your contribution. The UK uses three different contribution mechanisms and each one works differently for tax relief.

1. Salary sacrifice

Higher rate relief is automatic

Salary sacrifice means you give up part of your salary in exchange for your employer contributing the same amount into your pension.

How the relief works

  • Your salary is reduced

  • You do not pay tax on the sacrificed part

  • You do not pay National Insurance on it

  • Because the income is never taxed, higher rate relief is automatic

  • You also save employee NI

  • Your employer saves employer NI

Example

Your salary is £60,000. You sacrifice £5,000.
Your taxable salary becomes £55,000.
You avoid 40 percent tax on that £5,000 automatically.

In my opinion

Salary sacrifice is the most tax efficient way for higher rate taxpayers to contribute to a pension.

2. Net pay arrangement

Higher rate relief is automatic

With a net pay arrangement your pension contributions are deducted from your gross salary before tax is calculated.

How the relief works

  • Contributions reduce your taxable income

  • Full tax relief at your highest rate is given automatically

  • Nothing additional is required

Example

You contribute £500 through payroll.
Your taxable income is reduced by £500.
You automatically save 40 percent if you are a higher rate taxpayer.

In my opinion

Net pay arrangements are simple and work well for people who want tax relief without having to claim it.

3. Relief at source

Higher rate relief is not automatic

Relief at source is used by:

  • SIPPs

  • Personal pensions

  • Stakeholder pensions

  • Many workplace group personal pensions

How the relief works

You contribute from your net pay.
Your pension provider adds basic rate relief (20 percent).
You must claim any higher or additional rate relief yourself.

Example

You pay £80.
Your pension provider claims £20 from HMRC.
Your pension receives £100.
You are entitled to another £20 if you pay higher rate tax.

How to receive the extra

  • Claim through Self Assessment
    or

  • Ask HMRC for a tax code adjustment

In my opinion

Relief at source schemes are where people most commonly miss out because they do not realise higher rate relief must be claimed manually.

Who is entitled to higher rate pension tax relief?

You are entitled to higher rate pension relief if:

  • Your taxable income is above the higher rate threshold

  • You pay into a pension

  • Your pension uses a contribution method that does not give full relief automatically

Current thresholds:

England, Wales and Northern Ireland

  • Higher rate tax starts at £50,270

  • Additional rate tax starts at £125,140

Scotland (different tax bands)

  • Higher rate tax starts at £43,662

You may also qualify even if:

  • You only earn higher rate income for part of the year

  • You receive a bonus pushing you into higher rate tax

  • You have multiple jobs

  • You are self employed and pay into a personal pension

In my opinion many people wrongly assume they need to be higher rate taxpayers all year. This is not the case.

How to check whether you have received higher rate relief

You can check this in three places:

1. Your payslip

Look at how your pension contributions are deducted.

If your contribution comes off before tax:

You are likely in a net pay or salary sacrifice scheme and already receiving relief.

If your pension deduction comes off after tax:

You are in a relief at source scheme and need to claim the extra relief.

2. Your Personal Tax Account (online HMRC account)

Check your tax code.
If it contains references like:

  • “Pension relief”

  • “RAS contribution adjustment”

Your tax code may already include some relief.

But this does not always mean HMRC has calculated it correctly, especially if your contributions change.

3. Your pension provider or employer

They can confirm:

  • Which method your scheme uses

  • How contributions are processed

  • Whether basic rate relief has been added

In my opinion checking this once a year prevents missed relief.

How to claim higher rate pension relief

If your pension uses relief at source you must claim the extra relief yourself.

There are two ways to do this.

Method 1: Claim through Self Assessment

This is the most accurate and usually the quickest.

How it works

You report your gross pension contributions for the year.
HMRC calculates how much extra relief you are entitled to.
You receive:

  • A tax refund
    or

  • A reduced tax bill
    or

  • A tax code adjustment

Example

You contributed £4,000 net.
Your provider added £1,000.
Gross contribution: £5,000.
Extra higher rate relief due: £1,000.

Why I like this method

It creates a clear record of your relief and tends to be processed faster.

Method 2: Ask HMRC to update your tax code (PAYE claim)

If you do not file Self Assessment you can still claim.

How

  • Log in to your Personal Tax Account

  • Enter your estimated pension contributions

  • HMRC adjusts your code

You will see reduced tax deductions in future payslips.

Example

If HMRC adjusts your code by £1,000 your take home pay increases steadily across the year.

In my opinion this method is great if you prefer to receive relief monthly rather than as a lump sum refund.

How far back can you claim?

You can claim for the previous four tax years.

Example

If you discover today that you never claimed relief on a £5,000 SIPP contribution made three years ago you can still reclaim it.

In my experience people often receive significant refunds when they review past years.

Common mistakes people make

Mistake 1: Thinking workplace pensions always give automatic relief

Many do not. Group personal pensions often use relief at source.

Mistake 2: Claiming net instead of gross contributions

You must report gross contributions to HMRC.

Mistake 3: Assuming HMRC will sort it automatically

They only adjust your code if you tell them.

Mistake 4: Ignoring pension contributions after a pay rise

If your income crosses the higher rate threshold you may now be entitled to more relief.

Mistake 5: Forgetting personal pensions

Many people have SIPPs they contribute to irregularly and never claim relief on.

In my opinion checking every April is a smart habit.

Real world examples

Example 1: Personal pension

Adam earns £58,000 and pays £300 a month into a SIPP. His provider adds basic rate relief. Adam claims the extra higher rate relief through Self Assessment and receives around £720 a year back.

Example 2: Salary sacrifice

Maria sacrifices £6,000 of her salary into her workplace pension. Her taxable income drops automatically and she gets the full relief without needing to claim.

Example 3: Bonus pushes into higher rate

Liam normally earns £45,000 but receives a £10,000 bonus. He becomes a higher rate taxpayer for that year and can claim relief on his pension contributions even though most of his salary is basic rate.

Example 4: Two jobs

Sophia earns £30,000 at one job and £25,000 at another. Individually she looks like a basic rate taxpayer but combined she is higher rate. She must claim relief herself.

In my opinion: the key things you need to know

If I were to simplify this topic into the most important points, I would say:

  1. Higher rate pension relief is not always automatic.

  2. It depends entirely on whether your pension uses relief at source, net pay or salary sacrifice.

  3. Relief at source requires you to claim the extra relief yourself.

  4. If your pension deduction appears after tax on your payslip, you probably need to claim.

  5. You can claim through Self Assessment or by asking HMRC to adjust your tax code.

  6. You can go back four tax years for any missed relief.

  7. You should check your relief every year to avoid missing money you are entitled to.

In my opinion no higher earner should rely on the system automatically giving them relief without checking.

Final thoughts

Higher rate pension tax relief is a powerful tool for improving your retirement savings and reducing your tax bill but only if you receive it correctly. The system can be confusing because different pension schemes treat contributions in different ways. If you use salary sacrifice or a net pay arrangement the full relief is given automatically. If you use relief at source then you must claim the extra relief yourself through Self Assessment or a tax code adjustment.

In my opinion checking your pension method once a year, reviewing your payslips and understanding how your relief is delivered is the simplest way to ensure you are not missing out. A ten minute check could save you hundreds or even thousands of pounds.