HMRC is stepping up its scrutiny of pension tax relief claims from higher earners, as part of a broader effort to maximise revenue collection.
According to reports, from 1 September, the tax authority will be “lowering the threshold” for requiring evidence to support pension tax relief requests.
Additionally, the agency will no longer accept claims by telephone. Instead, taxpayers are instructed to submit claims online or by mail.
Some individuals will also be “asked to provide evidence where it would not previously have been required”.
Labour aims to deliver an additional £5bn in tax revenue per year, and among other things, it has increased resources for HMRC and invested in technology.
Chancellor Rachel Reeves revealed in her Spring Statement plans to recruit 500 more HMRC compliance staff, which was on top of the 5,000 new compliance staff that were announced at the Autumn Budget.
Under the current system, taxpayers can save a maximum of £60,000 a year into their pension and benefit from tax relief.
Basic-rate taxpayers automatically get 20 per cent relief added to their pot, while higher earners paying 40 per cent or 45 per cent tax may need to claim the extra tax relief via their self-assessment tax return.
HMRC said these changes were made to “protect taxpayers’ money” after an internal review found some workers were making incorrect claims for pension tax relief.
Pension tax relief claims
A review of claims for up to £10,000 in relief revealed that nearly one-third were for incorrect amounts.
The most common mistakes were claiming without higher-rate taxpayer status, seeking relief under a “net pay” arrangement where it had already been granted, and providing estimated rather than precise contribution figures.
About 80,000 claims for Personal Pension Relief are submitted to HMRC every year.
According to the HMRC annual report, 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.
A spokesperson for HMRC told the Telegraph: We’re lowering the threshold to ensure that people claim the right amount of relief and protect taxpayers’ money. This comes after we conducted a review which revealed that many claims below the current evidence threshold were incorrect.”
This comes as tax-free lump sum withdrawals from pension pots could be slashed as Reeves scrambles for fresh ways to plug a £50bn hole in the public finances.
Ahead of the Autumn Budget, the Chancellor is reportedly considering reducing the amount of money pensioners can withdraw from their savings pot without paying tax to as little as £40,000, a move that would be expected to raise more than £2bn for the Treasury.
