Recent analysis by online pension provider PensionBee has once again highlighted the issue of higher rate pension tax relief not being claimed on pension contributions. The research showed that more than 1 million of Britain’s higher rate tax payers are not claiming pension relief through their personal tax returns. It would appear that eight in ten higher-rate taxpayers who are eligible to claim relief via their tax returns failed to do so, while more than half of all additional-rate taxpayers – those earning more than £150,000 and paying the higher 45% tax rate – did not claim the relief they were due. To put this into perspective, PensionBee estimate this to be around £810m in pensions tax relief going unclaimed.
Knowing when to submit a tax return
The report reveals that only 310,000 of the 1.4m higher and additional-rate taxpayers claimed relief on their personal pensions in 2018/19. While contributions to a pension pot automatically attract 20% tax relief, those who pay tax at the 40 or 45% rate only receive extra tax relief if they include the details on their return. It’s believed therefore, that a sizeable proportion of those not claiming the relief are employees whose tax is managed through the PAYE system and therefore do not complete a personal tax return. Many may be unaware that this is even an option for them.
The obvious relief that too many ignore
Tony Jadzevics, Director at Evans Weir comments “This is one of those ‘obvious’ reliefs that we encourage all our eligible clients to use to maximise their earnings and future savings, but we still find significant numbers of people we speak to are unaware of the rules on claiming relief. When I consider the broader picture I wonder how the thousands of individuals that complete their returns themselves or don’t currently complete a return, despite being a higher rate tax payer, would even know to claim this. When you consider this on an individual level, and the compound interest that additional allowance could accrue on a pension over several decades, it feels like a significant amount of money to miss out on.”