Pension tax relief for a higher rate client: the extra 20% claim on a relief at source pension, worked

A paraplanner is preparing a review for a client who pays into a personal pension and earns well into the higher rate band. The pension provider has added 20% to each payment. The adviser asks whether the client is owed anything more, and by when it must be claimed. GOV.UK covers it on one page, and the working is short.

The rules on GOV.UK

On the "Tax relief" page, for a relief at source scheme:

• The provider claims tax relief at the basic 20% rate from the government and adds it to the pension pot.
• A taxpayer in England, Wales or Northern Ireland who pays a higher rate can claim extra relief through Self Assessment: "20% up to the amount of any income you have paid 40% tax on", and "25% up to the amount of any income you have paid 45% tax on".
• Relief is available on contributions worth up to 100% of annual earnings, or £2,880 paid in if there are no earnings that year.

The page's own example is for 2024 to 2025 (income £60,270, £12,000 paid in, extra 20% on £10,000, nothing extra on the other £2,000). It does not say whether the £12,000 is before or after the provider's 20%, so the tables below use payments we define ourselves.

Our assumptions

• The client is a higher rate taxpayer in England, with £10,000 of income taxed at 40%. That is the same figure as the GOV.UK example. It implies a higher rate threshold of £50,270 (£60,270 - £10,000), which is our deduction from the example, not a figure I read for 2026 to 2027. Check the client's actual bands.
• The payment is the amount the client pays, and the provider adds 20% to it. So the gross payment is the amount paid / 0.8, which is the same as paid x 1.25.

Three payments worked

The extra claim is 20% of the gross amount that falls in the 40% band, here capped at £10,000.

Checks on the arithmetic:

• £4,000 / 0.8 = £5,000, and £5,000 is under £10,000, so the claim is £5,000 x 0.2 = £1,000. Net cost £4,000 - £1,000 = £3,000. Relief is (£1,000 + £1,000) / £5,000 = 40%.
• £8,000 / 0.8 = £10,000, which equals the band, so the claim is £10,000 x 0.2 = £2,000. Net cost £8,000 - £2,000 = £6,000. Relief is £4,000 / £10,000 = 40%.
• £12,000 / 0.8 = £15,000. Only £10,000 is in the 40% band, so the claim is £2,000, not £3,000. Net cost £12,000 - £2,000 = £10,000. Relief is (£3,000 + £2,000) / £15,000 = 33.3%.

So the third payment shows the point: the extra claim stops at the income taxed at 40%, and the £5,000 gross above it gets only the basic 20%. Whether that matters for the client's plan is for the adviser.

The no earnings figure

For a client with no earnings, GOV.UK gives £2,880 paid in. At 20% added by the provider: £2,880 / 0.8 = £3,600 gross, and £3,600 - £2,880 = £720 of relief. The £3,600 is our arithmetic, not a figure on that page.

What to put on the review note

• How the client pays. The extra claim applies to a relief at source scheme. I did not read how a net pay workplace scheme gives relief to a higher rate client, so check the scheme type before using this table.
• Who makes the claim. The page says Self Assessment. Note whether the client files a return, or has an accountant, and put the date in the file. I did not read the route for clients who do not file one.
• Gross against net. Record whether each figure in the suitability file is the amount paid or the gross amount, because the example on GOV.UK leaves this open.
• Limits. Relief depends on earnings and the annual allowance. See the carry forward guide, the tapered annual allowance guide and the Personal Allowance taper guide, since a pension payment can also change the client's income for other thresholds.

For the wider review file, see the annual review checklist.

Overlyft builds AI staff who join your advice team and read each client's pension payments and scheme type before the review, work out the gross figure and the extra claim for a higher rate client, and prepare the one-page note for the adviser to approve.

This is general information, not financial advice. Check GOV.UK and the client's circumstances before you advise.