If you’re a higher earner, your pension contributions could be even more valuable than you realise — thanks to higher and additional rate tax relief. Pension contributions offer one of the most powerful tools available — by directly reducing your taxable income.

What Is Pension Tax Relief?

When you contribute to a pension, the government gives you tax relief to encourage retirement saving. The amount of relief depends on your income tax rate:

 

How It Works

If you contribute £1,000 to your pension:

• You only pay £800 — the government adds £200 (basic-rate relief at source).
• If you’re a higher-rate taxpayer, you can claim back an additional £200 via your tax return.
• If you’re an additional-rate taxpayer, you can claim an extra £250.

That means your £1,000 contribution could effectively cost you just £550.

How to Claim the Extra Relief

• The basic 20% is added automatically by your pension provider (for most personal pensions).
• The extra 20% or 25% must be claimed through:
  • Your self-assessment tax return, or
  • By writing to HMRC.

Why This Matters

Many higher earners don’t claim their full relief, missing out on hundreds or even thousands of pounds annually. Reviewing your contributions and tax position ensures you’re not leaving money on the table.

Reducing your tax

You pay less income tax now, while building up savings for retirement. If you’re looking for a tax-efficient way to save for the future, pension contributions offer one of the most powerful tools available — by directly reducing your taxable income.

Example

Let’s say you earn £110,000 and contribute £10,000 to your pension:

• For every £2 over £100,000, you lose £1 of personal allowance (so £5,000 in this example)
• By contributing £10,000 gross into a pension, you bring your adjusted income back down to £100,000, regaining this £5,000 of lost personal allowance.
• Benefit from regaining £5,000 of personal allowance = £2,000 (you would have otherwise paid 40% on that £5,000)
• Higher-rate relief (40%) on the £10,000 pension contribution = £4,000
• 60% tax relief is therefore / £6,000

Other Benefits

Reduces income for child benefit tapering (for incomes over £60,000)
Helps avoid or mitigate the 60% tax trap (£100,000–£125,140)
Reduces exposure to additional-rate tax (45% on income over £125,140)
Grows your retirement fund tax-free within the pension wrapper

Please get in touch if you feel this could be relevant to you.

Grant

Director and Independent Financial Adviser

This article is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.

A pension is a long-term investment and the value is not guaranteed. Any advice or considerations are personal to each individual’s circumstances.

Levels and bases of, and reliefs from, taxation are subject to change and their value will depend upon personal circumstances. Taxation and pension legislation may change in the future.