UK Pension savers ‘gift £229m to taxman’
07 Monday Oct 2013
Research suggests 182,500 people hand £229m to the taxman unnecessarily each year by failing to claim tax relief on pension savings.
Hundreds of thousands of savers are gifting £229m a year to the Treasury by failing to claim tax breaks on pensions, research indicates.
The figures come as Labour politicians work on plans to tinker with the way pensions are taxed, should the party be elected in 2015.
Currently, any money saved into a pension pot qualifies for “tax relief”. This is government incentive applies to all savers, who get the 20pc basic rate tax paid on contributions rebated automatically.
However, anyone who pays 40pc or 45pc tax has to fill in a tax return to claim back the additional relief.
One in four people fails to go through this process, according to research by pension provider Prudential. If accurate across the country, this is equivalent to 182,500 people – who each earn more than £41,451 – handing £229m to the taxman unnecessarily each year.
However, Prudential’s research was based on very small sample of just 302 higher-rate taxpayers. It is therefore highly unlikely to be precise.
Even so, pension savers should check whether they are paying the the amount of tax – particularly as the Labour party works on proposals to cap the amount of relief given to higher earners. This could see 30pc tax relief on pensions for all savers in future. The plans are still in development stages and could yet be curtailed or pared back.
A tax expert at Prudential, said: “Failing to claim higher rate pension tax relief can have a major impact on income and it is clear that a substantial number of higher rate taxpayers are not claiming the relief they are entitled to.
“There cannot be many people who would happily give up as much as £1,255 a year and substantial numbers of higher rate taxpayers can take action now to significantly improve their pension savings.
“The good news is that it is possible to reclaim tax relief you have missed out on and that claims can be backdated if you do not fill in a tax return yourself.”
Prudential said its research showed 59pc of respondents failed to claim all the tax relief to which they were entitled. Around 60pc of higher-rate taxpayers who paid into a defined contribution workplace pension said they do not fill in tax returns.
Some people with a company pension will have their contributions deduced from their salary before tax is applied; others will not. Ask your human resources department for details.
Savers with a personal pension should make their own arrangements for claiming tax relief.
Anyone who fills in an annual tax return can make claims for contributions paid as far back as the 2011/12 tax year. Those who do not fill in annual tax returns can claim as far back as the 2009/10 tax year – but they have only until October 31 to fill out the forms.
Expats Pensions Comments:
As detailed in this article it is important to know what tax you should and should not be paying. Expats Pensions work with a number of tax experts in the UK and over seas. Dont hesitate to contact us if you would like a referral.
We specialise in helping clients evaluate the possibility of transferring their personal or company pension with them overseas. Please see our site for more information www.expatspensions.com