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Higher rate pension tax relief

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Higher rate pension tax relief

Learn how high earners may be able to claim back additional tax relief on pension contributions.

If you are a high earner, you may be able to claim back additional tax relief on your self assessment tax return.

However, the amount you earn could also affect the amount you can pay into your pension each year.
 

Tax relief on pension contributions for high earners

Higher-rate taxpayers (anyone earning over £50,000 per year) receive 40% tax relief.

Additional-rate taxpayers (with an annual income over £150,000) receive 45% tax relief.

Your provider will claim the basic rate of 20% tax relief for you. If you are a higher-rate taxpayer, you can then claim back a further 20% through your self-assessment tax returns. Additional-rate taxpayers can claim back 25%.

The table below shows the total cost of pension contributions, and the benefit of tax relief, for higher-rate taxpayers:

 

Total pension contribution Personal contribution (80%) Government contribution (20%) Amount higher-rate taxpayers can claim back (20%) Effective cost for higher-rate taxpayers
£5,000 £4,000 £1,000 £1,000 £3,000
£10,000 £8,000 £2,000 £2,000 £6,000
£20,000 £16,000 £4,000 £4,000 £12,000
£40,000 £32,000 £8,000 £8,000 £24,000

How much can I contribute to a pension as a high earner?

Each tax year, you can contribute 100% of your earnings to your pension – up to a maximum contribution of £40,000. This is your annual allowance.

However, if you earn over £200,000 in a year, you may have a tapered annual allowance.

 

Tapered annual allowance

The tapered annual allowance is a reduction in the annual allowance for very high earners.

You may be affected if you have a ‘threshold income’ over £200,000 or an ‘adjusted income’ over £240,000.

Your annual allowance is lowered by £1 for every £2 your ‘adjusted income’ is over £240,000. If you earn £312,000 or more, you will have the maximum reduction of £36,000 – leaving you with a £4,000 annual allowance.

The table below shows how the annual allowance is tapered, based on how much you earn:

Annual Adjusted Income Annual Contribution Allowance
Up to £240,000 £40,000
£260,000 £30,000
£280,000 £20,000
£300,000 £10,000
£312,000 £4,000

 

How do I work out if I have a tapered annual allowance?

To work out if you will have a tapered annual allowance, you first need to calculate your ‘threshold income’.

If your threshold income is under £200,000 a year, you will not have tapered annual allowance. If it is over £200,000, you will need to check your ‘adjusted income’.

The Gov.uk website provides guidance on calculating your threshold and adjusted income.

Higher rate tax relief FAQs

You can claim back tax relief from the previous four years. Your claim must be made within four years of the end of the tax year you are claiming from.

You cannot receive tax relief on employer pension contributions. However, they do count towards your annual allowance.

Contributions from employers are not included in your salary and are not subject to tax in the first place. Any personal contributions you make are taken from the money in your salary which has already been taxed. Tax relief returns the income tax you have already paid.

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