You'll only receive additional tax relief on your private pension contributions, entered into your tax return, if you pay tax at the higher rate.
Most private pension schemes operate the 'relief at source' method to provide basic rate tax relief on the pension contributions. Where this is the case, contributions are deemed to have been made net of 20% basic rate tax. The scheme administrator is then able to claim the basic rate of tax from HMRC to be added to the pension fund.
For example, if pension contributions of £800 are paid to a pension fund, where the relief at source method is used, the payment is deemed to be net of 20% tax (in this case basic rate tax of £200). The pension scheme administrator claims the £200 from HMRC and adds this to the fund so in total the gross contribution to the fund is therefore £1,000.
For higher rate taxpayers, additional relief is obtained through the tax return by entering the gross contributions in box 1 on page 4 of the tax return. The basic rate band is then extended by the gross amount so that less income is taxed at higher rate, with the effect that relief is given for the difference between the higher rate and basic rate.
The maximum amount of gross contributions that an individual can claim relief for in a tax year is the higher of;
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The basic amount (current £3,600)
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The amount of the individual’s relevant UK earnings that are chargeable to income tax for the tax year
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