Higher Tax Bracket: Can I Claim Tax Relief on Pension
At present I'm paying 6% towards a pension scheme and my company is paying 6%. Am I OK to claim tax relief on my contributions since I'm in the higher tax bracket ?
Every year, billions of pounds worth of tax allowances goes unclaimed. Generally this is because people are frequently unaware of their entitlement; furthermore, an already over-stretched HM Revenue and Customs (HMRC) is either incapable of or unwilling to give rebates and allowances of their own volition. Pension tax allowances are amongst the most important, and can minimise your tax burden by a significant amount every year; indeed, the available tax allowances are perhaps the primary reason that people contribute to pension funds rather than investing their money elsewhere.
Good NewsThe good news is that you are indeed entitled to tax allowance on your pension contributions (see our article Pension Tax Relief in this section.) The fact that you are a higher rate taxpayer has no effect on this. However, the way in which you claim this allowance will depend on your specific circumstances.
You do not mention what type of pension plan you are paying into. This is important as it will determine how you get the allowance to which you are entitled. Many employers run company pension schemes. If you are paying into this type of scheme, your employer will be making contributions from your pre-tax income. You are therefore getting the allowance by default and there is no need to take any further action.
Personal PensionsHowever, companies are increasingly choosing to make contributions to their employees’ Personal Pension Funds, rather than set up their own. If you and your employer are paying into a personal pension, you will be making contributions from your post-tax income. The pension operator will then recoup the tax from HMRC and put it back into your pension pot. This is only the case for basic rate tax, though; for every £8 of post-tax income you pay into the pension, you will actually end up with £10.
As a higher rate taxpayer, you will have to recoup the remaining tax yourself. You can do this quite easily by making a claim direct to HMRC. This can be done by phone or in writing. Alternatively, you can apply for the allowance through your self assessment form if you are already a self assessment taxpayer.