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How to Calculate and Claim Higher Rate Tax Relief

How to Calculate and Claim Higher Rate Tax Relief

As pensions now have greater flexibility for access, and are more attractive from a tax perspective, larger pension contributions are becoming more frequent for those who are higher rate taxpayers. This article will therefore provide an overview of how higher rate tax relief is calculated and how it is claimed – of interest to CII pensions or taxation-related exam takers.

Written by Mark Underdown

Tip for Higher Rate Tax Relief - #1


Let’s look at an example to show how this is calculated.

Say a client earns £60,000 pa and wishes to make a gross single personal pension contribution of £20,000 in the 2016/17-tax year.

The full £20,000 will not obtain the higher rate tax relief at 40%.

First, we need to calculate how much of the client’s income is in the higher rate band. I’m sure many of you can do this quickly, however I will break down the full steps for those who need to build their understanding of this process.

Calculating Higher Rate Tax

The next stage is to calculate what the pension tax relief will be.

You will automatically receive basic rate tax relief on the £20,000 gross contribution, and so the client only pays £16,000 into the pension, with HMRC providing the rest.

As only £17,000 is subject to higher rate tax, this is the limit of gross contribution that will receive higher rate tax relief.

Tip for Higher Rate Tax Relief - #2


So what happens is the client needs to submit a self-assessment tax return stating their pension contributions and HMRC will increase the basic rate tax band. In this example, it would look as follows:

Bar Chart - Tax Bands Before and After Pension Contribution


So £17,000 of the gross contribution would receive higher rate tax relief (or a further £3,400).

The total tax relief is therefore £7,400 (or effectively 37% tax relief).

Factors to Consider and Double-Check

  • Has the client got an employer scheme, either via salary sacrifice or member contribution? Remember to take this into account. It’s often easy to forget about the plans a client has if we aren’t directly advising on them (well it is for me anyway!).
  • Are you also recommended regular contributions? Don’t forget to take these contributions from the amount that higher rate tax relief can be granted on.
  • Do you limit the contribution to the amount that will receive the full higher rate tax relief? If you know the client only has a one off sum and is unlikely to max out their contributions in the following year, you could split the contribution over two tax years to ensure all of the contribution receives 40% tax relief. The likely future funding level is also an important factor to consider.

Finally many people simply forget to claim for their higher rate tax relief (or don’t realise they need to do so).

Grab the resources you need!

If you’re studying for your CII R03 exam, and you’re a little worried about exam day, grab our free taster to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the R03 mock paper taster now!

Click here to download our free taster mock paper for CII R03

Alternatively, you can download taster resources for either R04 or AF3 if you’re revising for one of those exams.

Over to You…

Does this clearly explain how to calculate and claim higher rate tax relief? Let us know in the comments!


Mark Underdown is The Nomad Paraplanner.  He works remotely and can assist with investment research and financial planning reports. Visit to find out more.