A third of higher-rate taxpayers could be missing out on additional tax relief on their pension contributions by not completing a self-assessment tax return, experts warn.
The poll, carried out by investment platform interactive investor, found 32.5 percent of respondents either don’t intend to claim or don’t know how to fill one out and claim, which will see them miss out on an additional 20 percent pension tax relief.
According to interactive investor, a higher rate taxpayer annually paying £5,000 into a private pension could potentially miss out on £1,250 each year as a result.
Meanwhile, someone paying £10,000 into a private pension each year could miss out on £2,500 in annual pension tax relief.
Alice Guy, head of pensions and savings at interactive investor, said: “Pension tax relief is the jewel in the crown of the UK pension system, topping up pension contributions with additional tax relief.
“But many higher rate taxpayers are missing out on the full tax benefit of pension tax relief, and it could have a huge knock-on impact on their retirement wealth.
“Many people assume they automatically get all the pension tax relief they’re entitled to, but for higher rate taxpayers, that’s simply not the case. Ultimately, this is free money, and not claiming additional tax relief you’re entitled to means you could lose out on thousands of extra income each year.”
Pension tax relief allows taxpayers to claim income tax back on their pension contributions, meaning it only costs £80 to pay £100 into a pension for basic rate taxpayers, and £60 to pay in £100 for higher rate taxpayers.
But higher rate taxpayers who pay into a private pension or SIPP only get 20 percent tax relief automatically added on top of their pension payments. According to interactive investor, they need to claim the additional 20 percent tax relief through their tax return or by writing to HMRC with details of their pension contributions.
Subsequently, claimants will receive the relief as a rebate or deduction from other tax due.
Ms Guy continued: “Claiming back extra tax relief allows you to further boost your long-term wealth, especially if you pay your rebate straight back into your pension.
“A higher rate taxpayer who contributes £10,000 into their private pension each year, could boost their pension wealth by up to £122,000 over 20 years by claiming a rebate and adding it into their pension (assuming they achieve five perccent investment growth).
“If you don’t complete a tax return then you can write to HMRC to provide details of any private pension contributions during the year.
“Higher-rate taxpayers who contribute to relief at source workplace pension scheme will also need to claim the additional tax relief on their pension payments as it won’t be given automatically. You can also claim back missing tax relief for the previous three tax years as well as the current tax year.”
The deadline to submit a self-assessment tax return is midnight on January 31, 2024.
