Are you missing out on over £1,000 per year on unclaimed pension contributions tax relief?
Research by The Prudential has discovered that over 180,000 higher rate taxpayers are not claiming the legitimate pension contributions tax reliefs to which they are entitled. Through these tax reliefs, you can are increase your pension savings by 40%. For example, a £1,000 pension contribution will cost £600.
15% of those who took part in the survey were actually “unsure” if they were claiming this tax relief or not! Of those on money purchase pension schemes, the research found that a quarter were not claiming their full 40% tax relief – that’s a collective amount of £229 million every year!
Workplace pension schemes
There is usually automatic tax relief administered through the payroll system for those higher rate taxpayers on a workplace pension scheme. BUT – you need to check what percentage they are applying. Some, such as Group Personal Pension and Stakeholder schemes, only give 20% automatic tax relief. You are entitled to 40% and need to claim the rest yourself.
Research calculations
The Prudential considered 900,000 higher rate tax payers on defined contributions personal pensions. They concluded that 78% of them, with an average salary of £62,000, would pay 10% into their pension pot. This is an average of £523 per month. Applying the basic rate of 20% tax relief would add an extra £104 per month. And if you use the correct 40% higher rate of tax relief this doubles to £208.
Claire Moffat, a tax expert with Prudential, is reported as saying, “It can be worth as much as £1,225-a-year and there cannot be many people who would happily give up as much. Substantial numbers of higher rate taxpayers can take action now to significantly improve their pension savings.”
What can you do?
- If you’re in a workplace pension scheme, check if the automatic payment is your full 40% or only 20%. If it’s the latter – claim it back now
- Get claiming! If you don’t submit a tax return you can fill in a claim to backdate this tax relief to the 2009-10 tax year. The deadline is 31st October. If you do an annual tax return then you can backdate to the 2011-12 tax year. Either way, it’s time to fill in some forms and get in touch with the Tax Office
- If you happen to earn over £150,000 that puts you in the 45% tax bracket and means that you must claim your tax relief using your self-assessment tax return.
Am I eligible for any other tax reliefs?
If you’re a taxpayer with work expenses, then the answer is usually yes! It depends on your job. But if you’re a higher rate taxpayer that means you can claim 40% tax relief on those work expenses!
The most common expenses that higher rate taxpayers successfully claim for are;
- Using your private vehicle for work travel
- Uniform cleaning
- Purchasing equipment, tools or protective clothing for work purposes
- Union fees
- Subscriptions to professional bodies and journals
- Working from home.
Living overseas?
It can get a bit more complicated if you’re living overseas but tax relief is still due. In some cases all of your tax back paid on your pension income can be reclaimed like in Cyprus.
How do I claim higher rate pension tax relief on pension contributions?
You can use our free higher rate pension tax relief calculator to work out how much you could be owed and how to claim back the extra tax relief you are entitled to.
Tony Shanks