With HMRC Tax Return deadlines falling on January 31, millions of people across Britain have braced themselves for the annual task of completing their self assessment form.
But new evidence suggests a costly oversight is quietly draining the finances of higher earners. A recent Freedom of Information (FOI) response obtained by former pensions minister Steve Webb indicates that well over £1 billion a year could be going unclaimed by taxpayers who fail to claim the full pension tax relief they are entitled to.
Sir Steve, now a partner at pension consultants LCP, says: “With more and more people being dragged into higher rates of income tax, it is increasingly important that they claim all the tax relief to which they are entitled.
"Anyone saving into a personal pension or other ‘relief at source’ scheme can get higher rate relief – but only if they claim it.
"When filling in your tax return it is vital not to ignore the box for personal pension contributions but to enter the gross amount that went in to your pension. This should trigger a tax refund worth an average of over £1,700 for higher rate taxpayers and over £2,000 for additional rate taxpayers.”
What is the box and who can tick it?
The issue centres on how pension tax relief is delivered. In the 2023/24 tax year, around 6.8 million people paid into pensions using the “relief at source” (RAS) system. Under this arrangement, pension contributions are made from take-home pay, after tax has already been deducted.
HMRC then automatically adds basic rate tax relief to the pension pot. For example, an £800 contribution from net pay is topped up to £1,000 once 20 per cent tax relief is applied.
For basic rate taxpayers, that is where the process ends. But for higher earners, the system requires an extra step.
Anyone paying income tax at 40 per cent or 45 per cent is entitled to additional relief on pension contributions. Using the same £1,000 gross contribution, a higher rate taxpayer can reclaim a further £200, while an additional rate taxpayer can claim back £250. Crucially, this extra relief is not applied automatically and usually has to be claimed through a tax return.
The FOI data suggests that far fewer people are making these claims than would be expected. This points to large sums of money being left with HMRC rather than finding their way back into taxpayers’ pockets. One explanation is that many people have only recently become higher rate taxpayers due to wage growth or frozen tax thresholds and may not realise they now need to complete a tax return to claim full pension relief.
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How many people are missing out?
The scale of the problem becomes clearer when looking at the numbers. In 2023/24, around 16.4 per cent of taxpayers paid income tax at the higher rate, with a further 2.5 per cent paying the additional rate. If those proportions broadly apply to the 6.8 million people contributing to RAS pensions, around 1.1 million higher rate taxpayers and roughly 170,000 additional rate taxpayers should be claiming extra relief through self assessment.
Yet the FOI response suggests the actual number doing so falls well short. For individuals, this can mean missing out on hundreds or even thousands of pounds over time. From a policy perspective, it raises questions about how well-understood pension tax rules really are.
With tax returns back in focus, the message is clear: higher earners paying into pensions should check how their scheme operates and ensure they are claiming the full tax relief they are entitled to. What may seem like a minor administrative detail could make a significant difference to long-term retirement savings.
But, as the table shows, the actual numbers (from the FOI) are much lower:
In summary, it is likely that over a million higher rate taxpayers are paying into a RAS pension, but only 316,000 are putting this on a tax return, meaning around 800,000 may be missing out.
In terms of the amounts being missed, HMRC say that the average figure entered on tax returns for this type of pension contribution was £8,782 (assumed to be gross of basic rate tax relief). This means the extra which could be claimed is:
- £8,782 x (40%-20%) for a higher rate tax payer or £1,756 per person
- £8,782 x (45%-20%) for an additional rate taxpayer or £2,195 per person
Applying these figures to the shortfall shown above, the total loss is shown below:
HMRC point out that it is possible to claim Higher Rate relief by means other than the annual tax return, such as by writing a letter to HMRC or requesting a tax code adjustment, which would suggest that these figures might over-state the numbers affected, depending on how many people use this route.
However, more importantly, the figures above are more likely to be an under-estimate of the amounts underclaimed. This is because we have simply used the average pension contribution across all taxpayers shown on tax returns, whereas is it reasonable to suppose that higher earners make higher pension contributions.
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In addition, the problem is likely to get worse as the number of higher rate taxpayers increases.
The repeated freezes in the starting point for higher rate tax means that the number of higher rate taxpayers (and hence the numbers potentially missing out) are rising.
For example, the total number of higher and additional rate taxpayers was 6.9m in 2023/24 but has already risen to 8.3m in 2025/26 and is set to rise further.
As well as filling in this information in their 2024/25 tax returns, pension savers are being encouraged to make backdated claims back for any missing sums for up to four years.
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