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The UK tax authority is tightening control over pension relief claims by higher earners to “protect taxpayers’ money”, as part of a wider push to collect more revenue.
HM Revenue & Customs said on Thursday that from September 1 it would be “lowering the threshold” for requiring evidence in support of requests for pensions tax relief. Claims by telephone will also no longer be accepted and must be made online or by post.
The Labour government said last year that it would invest an extra £555mn annually in additional HMRC resources to achieve £5bn more in yearly revenue by the end of this parliament.
Under the current tax rules, individuals can pay up to £60,000 per year into their pension if they have an adjusted income of up to £260,000 per year, and receive income tax relief at their marginal rate.
For workplace “net pay” pension schemes, full tax relief is applied automatically. For personal pensions, the government automatically adds the basic rate 20 per cent tax relief, and higher and additional rate taxpayers then claim the extra tax relief via their self-assessment tax return.
HMRC said it was lowering the threshold for requiring evidence on personal pension relief claims to “protect taxpayers’ money” after it conducted a review that revealed that “many claims below the current evidence threshold were incorrect”.
About 80,000 personal pension relief claims are received annually. When HMRC examined personal pension relief claims under £10,000, one-third of respondents needed to correct the amount claimed.
The most common mistakes people make when applying for pension tax relief include claiming when they are not higher rate taxpayers, claiming when the pensions is under a “net pay” arrangement so they already receive the relief and guessing the amount they pay rather than giving accurate figures, according to HMRC.
When individuals withdraw money from defined contribution pensions, from the age of 55, they can withdraw 25 per cent of the pension tax-free up to a cap of £268,275. Otherwise, they pay income tax at their marginal rate.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said not allowing people to claim by phone would “present an issue for people who don’t have online access and doing it by letter may well be quite a lengthy process”.
Income tax relief on pensions is estimated to have cost the Treasury £29.5bn in the 2024-25 tax year, up from £22.7bn five years previously, according to official data.
Closer scrutiny of tax relief claims come as the Labour government announced in a budget last year it would bring private pension pots into inheritance tax, estimated to raise £1.5bn a year for the Treasury by 2030.
