The short version: Relief at source is how most personal pensions give you tax relief. You pay in from your after tax income, and the pension provider claims basic rate tax back from HMRC and adds it to your pot.
How does it work?
If you put £80 into your pension, the provider claims £20 from HMRC and your pot gets £100. You’ve effectively had the basic rate tax you paid on that £100 refunded into your pension.
What if you’re a higher rate taxpayer?
The pension provider only claims basic rate. You need to claim the extra relief yourself through Self Assessment. The additional 20% or 25% (depending on your tax band) comes as a reduction in your tax bill or a refund.
Is it different from salary sacrifice?
Yes. With salary sacrifice or “net pay” arrangements, your pension contribution comes out before tax is calculated, so you never pay tax on it in the first place. The end result is similar, but the mechanism is different.
Do you need to do anything?
Basic rate taxpayers get relief automatically. Higher and additional rate taxpayers need to claim the extra through Self Assessment.
Making pension contributions and want to check you’re getting all your tax relief? Let us take a look.
