New website helps higher rate taxpayers reclaim pension relief
Nearly one million higher (40%) and additional (45%) rate taxpayers are missing out on more than £200m a year by failing to claim pension tax relief, according to the insurer Prudential.
The new site – Tax Reliefs – has been developed to help these people reclaim the tax relief they are entitled to. Claims can be backdated for up to three previous years.
All taxpayers can claim tax relief on their pension contributions but while basic rate taxpayers receive their tax relief automatically – this is known as ‘relief at source’ – higher and additional rate taxpayers do not.
Why are higher rate taxpayers overpaying?
Higher rate taxpayers (40%) or additional/top rate taxpayers (45%) should receive tax relief automatically through payroll when paying into a company pension scheme.
However, under PAYE only the basic rate of tax (20%) is added to the taxpayers’ pension fund or made available to the charity to claim as a further addition from HMRC.
If you’re a basic rate taxpayer the government will give you £20 for every £80 you put into your pot. If you’re a higher rate taxpayer, the government contributes £40 for every £60 you contribute. If you’re an additional/top rate taxpayer, you pay £55 and the tax relief is £45.
But the extra 20% paid by higher rate taxpayers (25% if you’re an additional/top rate taxpayer) is not automatically rebated, added to the pension pot or given to the charity. A claim has to be made to HMRC for this.
Who’s most likely to be affected?
Those most likely to be impacted are employees who work in medium or small companies earning between £42,386 and £100,000 without other sources of income (and therefore only subject to PAYE and who do not submit a tax return).
If you’re on a salary sacrifice scheme, this won’t affect you as your employer won’t pay you the amount of the pension contribution. Instead, they’ll pay it as an employer’s contribution to the pension pot and these aren’t subject to tax relief as the employer wouldn’t have paid tax on them.
I’ve overpaid, how do I claim my money back?
The new Tax Reliefs website – spearheaded by Debbie Mahanta who has a background in business development and sales management including at UBS Zurich and Goldman Sachs Zurich – has been developed to help higher rate taxpayers claim gift aid and pension reliefs. You can claim back to 2012/13 but claims for this year 2015/16 can’t be processed yet as the tax year’s still running.
Taxpayers will need to enter their details to calculate how much they’re owed and you’ll need to pay £20 for a customised reclaim letter for either a pension or gift aid claim or £30 for both. A copy of the letter will be sent to your email which you’ll need to print and send off to HMRC. Your claim should be processed within 8-12 weeks.
Higher rate tax payers should act now
Mahanta said: “Many people overlook tax reliefs applicable to them as they automatically assume the PAYE system taxes them correctly and makes adjustments for rebates and reliefs due, which it does not. The amounts of these rebates can rack up very quickly and, in a time of stagnating salaries and low interest rates, claiming what is rightfully yours must be a priority.”
Mahanta urged higher rate tax payers to act now before the end of this tax year (5 April 2016) to reclaim the money they’re owed.