How do I work out if I’m a better fee taxpayer and might declare additional tax aid on my pension contributions? STEVE WEBB replies

I think I may have become a higher rate taxpayer, but I don’t know how to check this.

I am in the NHS pension scheme and am not sure if my contributions should be taken off the total.

I am also making contributions to a private pension which adds on basic tax relief.

So should I get tax relief at a higher rate and if so how do I get it? I have never done a tax return and am anxious about doing so.

It may not be relevant but I am also in receipt of a pension from a previous employer.

Steve Webb replies: In my column last week I explained the two different ways in which people can benefit from tax relief on their pension.

In your case, your two pensions receive tax relief in those two different ways, and this affects whether you need to claim any extra tax relief you may be due.

Starting with your NHS pension, your employer deducts your pension contribution from your pay before your income tax is worked out.

The result of this arrangement, known as Net Pay, is that you immediately get all of the tax relief you are entitled to.

Your pension contribution comes off your gross income as a ‘top slice’, meaning that if some of your income is above the starting point for higher rate tax pay tax, you automatically get higher rate relief on some or all of the contribution.

Your personal pension gives tax relief in a different way known as Relief At Source.

In this case, you pay into your pension out of your take-home pay – money that has already been taxed.

Your pension provider then claims basic rate relief on your contribution which is paid directly into your pension pot by HM Revenue & Customs.

The question then, is whether you might be entitled to any further tax relief.

To work out if you are a higher rate taxpayer, you can add up all of your taxable income such as your gross pay, your occupational pension from a previous job, and so on.

You can then deduct from this gross figure the contribution you are making into your NHS pension.

If the resulting figure is above the starting point for higher rate income tax – currently £50,270 per year in England and Wales – then you are a higher rate taxpayer.

In this case you can claim additional tax relief on the contributions that you are making into your personal pension.

There are two main ways in which you can do this.

One is, as you say, simply to fill in a tax return and include your personal pension contributions.

It is important to note that the figure you should enter on the form is the gross contribution, comprising your actual payment plus the basic rate relief.

This is the total amount that is being added to your private pension over the course of the year.

HMRC will then work out your tax bill, and you should be entitled to a tax refund. If this is a relatively modest amount it will probably be paid back to you through an enhanced tax free personal allowance.

But if you would prefer not to fill in a tax return you can claim online using the information on the gov.uk website here: Claim tax relief on your private pension payments.

As you will see, you can use this method to claim higher rate relief for the current tax year, and the website explains the information you will need to supply.

If you are successful, this should mean that your PAYE tax code is adjusted ‘in year’, meaning that you get the tax relief back sooner.

If you don’t fill in a tax return you will need to repeat this claim process each year.

Even if you are not currently a higher rate taxpayer once account has been taken of your NHS pension contributions, it would be sensible to check this each year.

As you may be aware, the starting point for higher rate income tax has been frozen since 2022/23 and is set to remain frozen until at least 2030/31.

Assuming you continue to be in paid work, annual pay rises will gradually push you over the frozen threshold.

At this point you will need to go through the claims process that I have outlined if you want to get the full tax relief to which you are entitled.