£750m of tax relief unclaimed!
It’s pretty common knowledge that a personal contribution into a pension scheme benefits from 20% tax relief. So for example, if you pay in £100, your pension is credited with £125. However, did you know that if you are a higher or additional rate taxpayer, you can claim further tax relief on any personal contributions?
Going back to the above example, the credit to your pension would be the same i.e. £125, but you can claim an extra 20% back if you are a higher rate taxpayer or a further 25% if you are an additional rate taxpayer. That means that a £125 pension contribution has effectively cost you £75 (higher rate taxpayer) or £68.75 (additional rate taxpayer).
I heard some really interesting stats on a recent webinar hosted by Royal London. A study by PensionBee found that 80% of higher rate taxpayers and 54% of additional rate taxpayers are not claiming back the further tax relief that they are entitled to. In 2017/18, it’s estimated that there was up to £750m of tax relief that went unclaimed!!
𝗪𝗵𝘆?
Well, HMRC won’t contact you to tell that you are owed further tax relief nor will they refund you automatically. Any claim must be made by the individual themselves. This is usually cleared up via self-assessment tax returns, but it’s clear that not every higher/additional rate taxpayer complete tax returns, especially if they are employed and paid via PAYE. Many people in this position don’t see the need to submit tax returns as their affairs are simple.
The good news is that if you think that you are entitled to some extra tax relief, you can go back FOUR tax years and reclaim any further tax relief you were owed due to personal pension contributions in these years. With the tax year end approaching, it’s important to look at this soon before the oldest year falls out of the cycle!
The above is just another example of the potential benefits of working with a financial planner. We not only look at the big picture, but we also help your money work harder for you.
Written by financial planner, Simon Warne
