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Pension relief for higher rate taxpayers

Answer the following questions, if you will:

1. Do you earn more than £40k per year?
2. Are you taxed under PAYE and don't complete a tax return?
3. Do you make personal pension contributions?

If the answer to three questions is yes, you may be paying too much tax.

If you pay pension contributions personally, you will automatically receive tax relief on those payments at 20%. This takes the form of an additional contribution made directly to your pension scheme by the government. For example, if you pay £100 per month, at the end of the tax year the government will pay in an extra £25 for each month's contribution, making an additional annual contribution of £300.

If your total gross income is more than £41,450, you will be a higher rate tax payer and will be paying tax at 40% on any part of your income that is higher than this. 

However, if you also make pension contributions, you are entitled to claim relief from higher rate tax to the extent that contributions reduce your income down to the higher rate threshold.

The catch is that, in order to get the higher rate tax back, you have to declare your income and pension contributions to HMRC. This is usually done on an income tax return. If you are taxed wholly under PAYE, it is unlikely that you will have ever been asked to complete a tax return and will not be asked by HMRC to complete one automatically. The whole process may be daunting for you. However, it could be the case that it is worthwhile to do, particularly if there is an opportunity to look at previous years.

To start the process, speak to an accountant or pensions adviser, or even just ring HMRC. All of us are obliged to help you.