HMRC Tightens Rules on Pension Relief: What You Need to Know
Pensions remain one of the most tax-efficient ways to save for retirement, especially for higher and additional rate taxpayers. Contributions into a registered pension scheme not only grow your savings but also attract valuable tax relief.
However, HMRC has recently increased its scrutiny of pension tax relief claims. Errors are more common than many realise, and HMRC believes too much relief has been claimed incorrectly in self-assessment returns. With this in mind, we have put together why it’s vital to regularly review your pension contributions.
How Pension Tax Relief Works
For most savers, tax relief is provided automatically, but the method depends on your scheme:
- Net pay schemes – contributions are deducted before tax is calculated, so full relief is given at source.
- Relief at source schemes – contributions are taken after tax, and the provider claims basic rate relief (20%) directly from HMRC. Higher and additional rate taxpayers can then claim extra relief through their self-assessment return.
This additional relief can be significant. For instance, a £10,000 gross contribution costs a higher-rate taxpayer just £6,000 after relief. It’s easy to see why HMRC is paying closer attention.
Common Mistakes with Pension Relief
Some of the most frequent errors include:
- Double claims – higher rate relief claimed on contributions already fully relieved through net pay schemes.
- Income thresholds – claiming higher rate relief even when income falls below the threshold in a given year.
- Misreporting – incorrect entries in self-assessment returns inflating claims.
- Director contributions – confusion where a company makes contributions on behalf of a director, leading to mistaken double claims.
HMRC’s Tougher Stance
From 1 September 2025, HMRC will:
- Lower the threshold for requiring supporting evidence on claims.
- No longer allow claims to be made over the phone.
Incorrect claims could lead to:
- Tax repayments.
- Interest charges.
- Penalties for careless or deliberate errors.
In some cases, an enquiry into pension relief could even open the door to wider investigations into an individual’s tax affairs.
What You Can Do Now
If you’re making pension contributions, it’s worth taking a few proactive steps:
Confirm your scheme type – ask your provider if it’s net pay or relief at source.
Check your contributions against your income – ensure you’re eligible for higher or additional rate relief.
Keep evidence – hold onto certificates, payslips, and provider statements.
Review your tax return – make sure pension entries are accurate and consistent.
Professional advice is invaluable here. We review pension contributions annually as part of the tax return process to spot risks, ensure accuracy, and help determine whether personal or company contributions deliver the best outcome.
Final Word
This increased HMRC focus shouldn’t deter you from saving into pensions. The tax reliefs available remain highly generous and are particularly valuable for higher and additional rate taxpayers.
The key is making sure your claims are correct, maximising the relief available while staying fully compliant.
