Back in April, my colleague, Wendy Devlin, wrote a blog on the gifts from Government – the tax reliefs available to all but which need action to be claimed, usually by some form of investment e.g. ISAs and the tax-free allowances on deposit accounts.

One area that frequently rears its head – but still surprises me each time I hear it – is the lack of reclaim of higher rate tax relief on pension contributions.

In simple terms, you are entitled to tax relief at the highest rate you pay on any pension contributions that you make. This applies where you either make a personal contribution from your own bank account or where a net pension contribution is deducted from your net pay*.

In both these scenarios, you receive basic rate tax relief when your money gets to your pension provider and they add the tax relief on to the money you have received to make a gross pension contribution. For example, £100 is taken from your bank account or net pay, but the gross amount added to your pension is £125. This is reclaimed from HMRC by your pension company and requires no action from you. But this is only basic rate tax relief and takes no account of your actual tax position.

If you are a higher rate taxpayer, you are entitled to, and can reclaim further money from HMRC. A 40% taxpayer can reclaim an additional £25 per £100 contribution, while an additional rate taxpayer can reclaim £32.25.

The key phrase here is “you can reclaim”. HMRC don’t trawl their records to see who is a higher rate taxpayer and then pay out the money, or invite these taxpayers to make a claim. It is the responsibility of the individual to claim the money, unprompted by HMRC, usually by completion of a Self-Assessment return after the end of the tax year. If you don’t routinely make a Self-Assessment return, then it is easy to overlook this.

The other problem is lack of knowledge. Many higher rate taxpayers simply don’t know or have forgotten that they can reclaim this money and, therefore, don’t.

So, if you fall into this category, what can you do?

The good news is that you can backdate a reclaim for higher rate relief. You can go back up to 6 years (although a recent court ruling has suggested this retrospection can be indefinite but is still awaiting testing).

To do so, you need to write to HMRC with proof from your pension provider of the contributions paid. You don’t need to claim a specific amount, just say that you believe you are entitled to additional relief and ask HMRC to check their records accordingly. Once HMRC confirm you are entitled, you will receive your relief either by way of a change to your tax coding or, for larger amounts, by cheque.

Is it worth doing? Yes, of course it is! Getting any money back from HMRC is a win on a psychological level. But, more seriously, we have helped clients reclaim amounts from just a few hundred to several thousand pounds. And who isn’t going to feel just a little bit smug when they drop into conversation that they’ve just received a cheque from HMRC that is going towards their next holiday?

Need help doing it? Let us know and we’ll guide you through.

* If you are in a pension scheme of your employer on a Salary Exchange basis, you receive your higher rate relief automatically. However, if Salary exchange has only recently been introduced, you may be entitled to reclaim higher rate relief for previous years. And if your employer doesn’t offer Salary Exchange, you may want to ask them why not? Not only will it give you your higher rate relief, it will also save you National Insurance.

Peter Murphy DipPFS

This information is based upon our understanding of the tax rules April 2017.

The value of investments may fall as well as rise and you may not get back the full amount invested.

Copyright Richmond House Group 2017