High earners could miss out on £870m tax windfall
Some 3.8 million higher rate taxpayers could be in line for a tax rebate by completing a self assessment tax return.
The deadline for online tax returns is 31st January.
While an estimated £870m of higher rate pension tax relief is up for grabs, around £229m of this remains unclaimed, according to figures from Prudential.
Members of group personal pension schemes are at particular risk of missing out because they are often enrolled, or auto-enrolled, into a pension without fully appreciating the tax benefits, and how to claim them back, said Laith Khalaf from Hargreaves Lansdown.
“January is a month of bad weather, fad diets and filling in your tax return. Getting your higher rate tax relief back from the taxman is a chink of light in an otherwise bleak midwinter. It’s a rare chance to get something back from the taxman, and higher rate taxpayers should grab it with both hands,” Khalaf said.
How pension tax relief works on individual pensions
When you make a £10,000 contribution to a SIPP or personal pension, the taxman adds £2,500 in basic rate tax relief. This is the same for those in company schemes.
However if you were a higher rate taxpayer between April 2012-April 2013, you can now claim up to a further £2,500 back in higher rate relief. If you were a 50% taxpayer you can claim up to a further £3,750.
But in order to get back the tax relief, taxpayers need to make a claim as HMRC does not automatically pay this out. The most common way of doing this is through your annual tax return.
How company pensions are affected
Trust-based company pensions, including final salary schemes, typically make pension contributions that already factor in higher rate tax relief so there is no further need to claim.
Group personal pensions only have basic rate relief included in contributions however, so higher rate taxpayers need to claim the additional relief.
The exception to this is where employers operate ‘salary sacrifice’ schemes, where all tax relief is already included in contributions and there is no further need to claim.