Have you been claiming your tax relief on your pension contributions?
Taxpayers in Britain give away more than £2 billion to the taxman each year by failing to claim all the pension tax relief to which they are entitled.
Everyone who pays into a pension is entitled to tax relief on contributions, essentially free money from the government to encourage you to save more for your retirement. It is estimated that 250,000 higher-rate taxpayers do not claim back all of their relief because they mistakenly believe they receive it automatically.
But this isn’t always the case – in many cases you must claim it.
The amount of tax relief you get on your pension contributions depends on the top rate of income tax you pay.
Basic-rate taxpayers (who pay 20% income tax) automatically receive 20% tax relief on all contributions. The money gets paid into their pensions automatically, whether it is operated by their employer or if it is a personal pension. Essentially, this is known as ‘relief at source’.
Are the rules different for higher-rate taxpayers?
The rules are different for those paying the 40% and 45% higher-rate income tax.
20% tax relief is still provided at source, but the additional tax needs to be reclaimed via self assessment.
What do I need to do?
If you are a higher-rate taxpayer paying personally into a personal pension you will need to claim the extra 20% or 25% back through HM Revenue & Customs.
This is done through a Self Assessment Form.
If you fill out a tax return to reclaim your relief you will either receive the difference as a rebate at the end of the tax year, a reduction in your tax liability, or HMRC will change your tax code.
When you fill in the form, make sure you state how much you have contributed to your pension – you must give the gross contributions, which is the amount you have paid in plus the basic rate of tax relief you have already received on both your and your employer’s contributions.
Write to HMRC
You can also claim the difference by telephoning or writing to HMRC if you are a 40% income taxpayer. If you pay 45% tax this must be done through your tax return.
You will need to provide HMRC with the following details if you telephone or write:
• Your name
• Your address
• National insurance number
• Tax office address
• Your gross annual pension contribution (including the relief you have already got)
• You must sign and date the letter
If you are unsure of what you are entitled to, your pension contributions and your tax relief please speak to one of our independent financial advisers by telephone on 01273 208813 or email [email protected]
For more information about Pensions click Here.
For more financial information like this and to sign up for our newsletter please click here
IEP Financial are authorised and regulated by the Financial Conduct Authority (FCA)
The value of investments can fall as well as rise and past performance is not a guide to the future. The content of this publication is for information only. It does not represent personal advice or a personal recommendation, and should not be interpreted as such. Please do not act upon any part of it without first having consulted an Independent Financial Advisor’