High rate taxpayers fail to claim tax relef on pensions, reveals Prudential
David Woods, July 23, 2012
Nearly six out of 10 higher rate taxpayers are failing to claim the full tax relief (worth 40%) they are entitled to receive on their pension contributions, according to independent research commissioned by Prudential.
Nationally, this equates to more than 290,000 employees missing out on a total of approximately £295.8 million every year, the report reveals.
The research also showed that fewer than one in five (19%) higher rate taxpayers knew whether they had claimed tax relief or not, while only 22% of respondents said they did claim all the pension tax relief they were entitled to. This relief could be worth an additional £1,020 every year to a higher rate taxpayer.
According to HMRC, 55% of the estimated 900,000 higher rate taxpayers in the UK contribute to defined contribution pension schemes. They have an average salary of £51,580 and make contributions of £425 each month on average. Basic rate 20% tax relief is received automatically at source and is worth £85 on a monthly contribution of £425. But the additional 20% relief available for higher rate taxpayers - which is unclaimed by most - is worth another £85 a month or £1,020 every year.
Prudential is urging higher rate taxpayers to act now to claim tax relief that they may have missed out on in previous years. People who are required to complete an annual tax return can claim for their pension contributions from the 2010/11 tax year if they act before the end of January 2013. Those who don't need to do a tax return can claim for relief for as far back as the 2008/09 if they act before the end of October 2012.
Members of occupational pension schemes receive basic and higher rate tax relief automatically through their payroll. But members of personal pension schemes, including GPPs (Group Personal Pension Schemes), SIPPs (Self Invested Personal Pensions) and stakeholder pensions, only receive basic rate 20 per cent tax relief automatically. They need to claim the additional relief through their annual tax return or by informing HMRC.
Matthew Stephens, Prudential's tax expert, said: "It's astonishing that so many people fail to claim this valuable tax relief, which could help enormously in meeting the cost of retirement. Surely no one would knowingly turn their nose up at a potential £1,020 extra tax saving?
"The good news is that it's possible to claim backdated tax relief, for up to three years for those who don't need to complete a tax return, and this money could make a large extra contribution towards their pension fund. Our research figures demonstrate clearly that a majority of higher rate taxpayers could take immediate steps towards boosting their retirement pot."
The Prudential research shows that one third (33%) of higher rate taxpayers paying into personal pension schemes are required to complete an annual tax return.