Higher and additional rate tax relief

3 minute read Last reviewed: September 2025

Who is this article for?

For financial advisers only.

Key takeaways

Higher rate tax relief is achieved by extending tax bands via gross personal pension contributions.
Relief at source gives 20% upfront; higher/additional rate relief must be claimed separately.
Planning can eliminate higher rates of tax entirely in some cases.

Index

1. What is higher and additional rate tax relief?

This tax relief allows individuals to reduce the amount of income taxed at 40% or 45% by increasing the basic and higher rate bands. This is done by making gross personal pension contributions, which extend the thresholds used to calculate income tax.

2. How relief at source works

Most personal pensions, including Quilter’s, operate on a relief at source basis. This means:

The investor pays a net contribution (e.g. £80).
The scheme administrator grosses up the contribution to £100 by claiming 20% tax relief from HMRC.

This 20% is automatic and applies to all eligible contributions.

3. Claiming additional relief

Higher and additional rate taxpayers are entitled to extra relief* :

Higher rate (40%): an extra 20% relief.
Additional rate (45%): an extra 25% relief.

*The rates are different for different parts of the UK, however this article for simplicities sake is based on the England rates.

You can do this via your self-assessment. HMRC has walkthrough video to help with self-assessment here and the section on pension tax relief can be found around the 15 minute and 20 seconds mark.

Employer contributions are paid gross and do not attract personal tax relief, though they may be deductible for corporation tax.

Tax relief is calculated by extending the basic and higher rate tax bands, allowing more of the individual’s income to be taxed at lower rates.

4. Tax band extension explained

Gross personal contributions increase the thresholds for basic and higher rate tax bands. This means:

More income is taxed at 20% instead of 40% or 45%.
The individual receives the extra tax relief by not paying higher or additional rate tax on part of their income.

This mechanism is set out in Income Tax Act 2007 Part 2 Chapter 3 and FA 2004 Section 192(4).

Tax bands for England

England Income Tax Bands (2025/26)
England Income Tax Bands (2025/26) - No Personal Allowance

England Income Tax Bands (2025/26)

Band	Income Range	Tax Rate
Personal Allowance	Up to £12,750	0%
Basic Rate	£12,571 to £50,270 (£37,700)	20%
Higher Rate	£50,271 to £125,140 (£74,870)	40%
Additional Rate	Over £125,140	45%

England Income Tax Bands (2025/26) - No Personal Allowance

Band	Income Range	Tax Rate
Personal Allowance	Up to £12,750	0%
Basic Rate	£12,571 to £50,270 (£37,700)	20%
Higher Rate	£50,271 to £125,140 (£74,870)	40%
Additional Rate	Over £125,140	45%

5. Examples

Below are two examples illustrating how the mechanism for extending the tax bands results in tax relief.

Before the pension contribution

Total income: £61,450
Personal allowance: £12,570 (this is tax-free)
Taxable income: £61,450 − £12,570 (personal allowance) = £48,880

Now we apply the tax bands to the £48,800 taxable income:

Basic rate band: £37,700 taxed at 20%
Remaining income: £48,880 − £37,700 = £11,180 is withing the higher rate band so is taxed at 40%

So without any pension planning, the individual pays:

20% on £37,700 = £7,540
40% on £11,180 = £4,472
Total tax = £12,012

After the pension contribution

Gross pension contribution: £11,180
This extends the basic rate band from £37,700 to £48,880

Now the entire taxable income (£48,880) falls within the extended basic rate band, so:

All income is taxed at 20%
20% on £48,880 = £9,776
No income is taxed at 40%

Tax relief received

20% relief at source: £2,236 (automatically added to the pension)
20% relief via self-assessment: £2,236 (claimed back from HMRC)
Total relief: £4,472
This matches the amount of higher rate tax that would have been paid without the contribution.

Before the pension contribution

Total income: £170,000
Personal allowance: £0 (phased out due to high income)
Taxable income: £170,000

Now we apply the tax bands to the £170,000 taxable income:

Basic rate band: £37,700 taxed at 20%
Higher rate band: £87,440 taxed at 40% (from £37,701 to £125,140)
Remaining income: £44,860 taxed at 45% (income above £125,140)

So without any pension planning, the individual pays:

20% on £37,700 = £7,540
40% on £87,440 = £34,976
45% on £44,860 = £20,187
Total tax = £62,703

After the pension contribution

Gross pension contribution: £10,000
This extends the basic rate band from £37,700 to £47,700
This extends the top of the higher rate band from £125,140 to £135,140
So now, £10,000 of income that was taxed at 45% is pulled down into the 20% band

New tax calculation on the £170,000 taxable income:

Basic rate band: £47,700 taxed at 20%
Higher rate band: £87,440 taxed at 40% (from £47,701 to £135,140)
Remaining income: £34,860 taxed at 45% (income above £135,140)

So without any pension planning, the individual pays:

20% on £47,700 = £9,540
40% on £87,440 = £34,976
45% on £34,860 = £15,187
Total tax = £60,203

Tax relief received

20% relief at source: £2,000 (automatically added to the pension)
25% relief via self-assessment : £2,500 (claimed back from HMRC)
Total relief: £4,500
This matches the amount of tax saved by shifting £10,000 from 45% to 20%

6. Alternatives to the ‘relief at source’ method

An alternative way to receive tax relief on pension contributions is through the net pay arrangement. This method applies only when personal contributions are deducted directly from salary via payroll. Because the contribution is taken from gross pay before tax is calculated the member automatically receives full tax relief.

This arrangement cannot be used with personal pension schemes.

Occupational pension schemes such as auto enrolment and defined benefit schemes, , typically operate on a net pay arrangement basis.

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Higher and additional rate tax relief

Who is this article for?

Key takeaways

Index

1. What is higher and additional rate tax relief?

2. How relief at source works

3. Claiming additional relief

4. Tax band extension explained

Tax bands for England

England Income Tax Bands (2025/26)

Band

Income Range

Tax Rate

England Income Tax Bands (2025/26) - No Personal Allowance

Band

Income Range

Tax Rate

5. Examples

Example 1: Higher rate taxpayer

Before the pension contribution

After the pension contribution

Tax relief received

Example 2: Additional rate taxpayer

Before the pension contribution

After the pension contribution

Tax relief received

6. Alternatives to the ‘relief at source’ method

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