Financial experts are advising higher earners to move quickly to use their self-assessment tax return to claim back up to four years’ worth unpaid tax relief on pension contributions.

It is estimated that millions of higher-rate taxpayers may be missing out on reclaiming valuable pension tax relief — with £1.3bn left unclaimed over five years.

And so, as the deadline for self-assessment looms closer, financial experts are reminding higher earners of the ways in which they can reclaim tax relief on pension contributions paid up to four years previously.

Says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown: “Many people will be gearing up to hand money to the taxman as the deadline for online self-assessment approaches. However, for others it’s time to give their pensions a welcome boost as they reclaim unpaid tax relief on their pension contributions.

“Pension tax relief is set at your marginal rate of income tax, so if you pay basic rate tax you get 20% relief on your pension contribution. It means that a £100 pension contribution only costs you £80.

“If you are a higher or additional rate taxpayer, the same contribution only costs you £60 or £55, respectively.”

Whether you need to reclaim tax relief depends on what type of pension you are in:

If you are a basic rate taxpayer, then you should receive the right amount of tax relief on your contributions automatically, but if you pay tax at a higher rate, you could be missing out without realising it. It all depends on what type of pension you contribute to.

If you are in a salary sacrifice arrangement, or what is known as a net pay arrangement, then you should get the right amount of tax relief. This is because under net pay your pension contribution is deducted from your salary before income tax is paid, and your scheme will then claim back tax relief at your marginal rate of income tax.

However, if you contribute to a “relief at source” arrangement, then things work differently, with contributions deducted from your salary after tax. The employer takes 80% of the contribution from the employee’s salary and then reclaims the extra 20% from HMRC.

This means if you are entitled to tax relief at a higher rate, you need to claim it. Many private pensions, such as SIPPs, as well as some workplace pensions, are set up as relief at source so it’s worth checking with your provider if you are unsure.

Concludes Morrissey: “You can backdate claims for up to four years and if you don’t fill out self-assessment forms you can claim the relief online through the gov.uk website or via the post.

“It’s vital that you make sure the money gets paid into your pension to give your retirement a boost rather than leaving it in savings.”

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