More than £1bn of pension tax relief is potentially being left unclaimed by around 800,000 higher earners each year, according to a freedom of information (FOI) request from LCP partner, Steve Webb.

Those paying into a pension that uses the relief-at-source (RAS) method to provide tax relief and paying higher rate (40 per cent) or additional rate (45 per cent) income tax can claim extra tax relief.

However, the FOI data from HMRC suggested that the number of higher earners making pension tax relief claims was lower than would be expected.

In 2023/24, 6.8 million people paid into a RAS pension, while around 16.5 per cent of all taxpayers paid the higher rate of income tax and 2.5 per cent paid the additional rate.

Assuming the RAS pension-paying population was broadly representative of the overall taxpaying population, this would mean around 1.1 million and 170,000 higher and additional rate taxpayers should be claiming pension tax relief, respectively.

However, the FOI revealed that the actual number of higher and additional rate taxpayers claiming pension tax relief was 316,000 and 151,000, respectively.

This leaves around 807,000 higher rate taxpayers and 19,000 additional rate taxpayers that could be missing out on tax relief.

HMRC stated that the average figure entered on tax returns for this type of pension contribution was £8,782, meaning the average amount of tax relief unclaimed by higher and additional rate taxpayers could be £1,756 and £2,195, respectively.

This would mean the estimated total value of unclaimed pensions tax relief for higher rate taxpayers was £1.42bn, while for additional rate taxpayers it would be £40m.

HMRC noted that it was possible to claim higher rate relief through means other than the annual tax return, such as writing a letter to HMRC or requesting a tax code adjustment, which would suggest these figures may over-state the numbers affected.

However, Webb pointed out that the figures could be an underestimation of the amounts underclaimed, as they used the average pension contribution across all taxpayers, but it was reasonable to assume that higher earners made higher pension contributions.

He also warned this issue was likely to get worse as the number of higher rate taxpayers increases due to continued freezes to tax thresholds.

“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,” Webb stated.

“Anyone saving into a personal pension or other RAS 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 into 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.”

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