HMRC makes major pension tax rule change this month

HM Revenue and Customs (HMRC) has tightened rules on how higher earners can claim extra pension tax relief, following the introduction of new restrictions at the start of September.

From September 1, claims for additional relief can no longer be made over the phone. Taxpayers must now submit requests either online or by letter. Everyone will also now need to provide evidence from their pension provider when claiming, a requirement previously only made of those paying in over £10,000. The change comes after an internal review found around a third of claims for up to £10,000 were incorrect.

Many errors involved people who were not higher-rate taxpayers submitting claims, misreporting their contributions, or requesting relief on pensions already covered by "net pay" arrangements.

Under net pay, contributions are deducted before income tax is worked out, so savers automatically receive their full entitlement. For most higher earners in workplace schemes, no further action is needed.

However, those contributing to personal pensions through the "relief at source" system - where only basic rate relief is added automatically - still need to reclaim additional relief through a self-assessment. HMRC estimated that about 80,000 of these claims are made every year.

Charlene Young, senior pension and savings expert at AJ Bell, said: "HMRC has made it tougher to claim pension tax relief, requiring everyone to evidence their claim for higher amounts. Previously, the requirement to evidence a claim was only placed on those paying in more than £10,000.

"This means that anyone claiming for higher or additional rate tax relief (and the intermediate rate in Scotland) will need to speak to their pension provider for evidence of what they've paid into the scheme throughout the year.

"If you can't find this when you log in to your pension account, or through the provider's app if they have one, then you may need to contact the pension company and ask them to send it to you."

She added: "You'll then need to supply this information to HMRC when you make a claim for the tax relief owed to you."

An HMRC spokesperson said: "We're lowering the threshold to ensure that people claim the right amount of relief and protect taxpayers' money. This comes after we conducted a review, which revealed that many claims below the current evidence threshold were incorrect.

"Customers can quickly and easily make a claim and provide supporting evidence, using our online form."

How to claim pension tax relief if you're eligible

Ms Young suggested first checking your payslip to determine whether you're eligible to claim pension tax relief.

She said: "That should show your National Insurance (NI) number and any contributions made to your pension. You then need to find out what type of scheme you're in. Some schemes, normally known as 'net pay' arrangements, will pay pension contributions before any tax is paid.

"In this case, income tax won't have been deducted prior to the money being paid into a pension, meaning you're already getting the full rate of relief and don't need to claim."

However, if your pension contributions are made after tax, normally described as 'relief at source', then your company will be making tax deductions and then calculating pension contributions.

Ms Young said: "The pension scheme will automatically claim back 20% basic rate relief, but you must then claim the additional 20% or 25% relief yourself."

She added: "If you can't tell from the information on your payslip what type of scheme you're in, contact your employer or the pension provider and ask them to tell you."

To claim, people must contact HMRC directly - there are a few different ways to do this.

Ms Young said: "If you complete a tax return, you can include the information there and recover any tax relief owed.

"If you don't usually have to complete a tax return, you can claim the extra relief directly online from HMRC. You can also write to them, although it will take longer to process."

To complete the process online, visit the government webpage, which you can find through a search engine, and follow the link to claim.

Once the claim is processed, you'll either get the extra relief through your tax code adjustment, a tax refund, or an adjustment to your tax bill for the year.