If you’re a higher-rate taxpayer, the government may well owe you money.
Pension tax relief is “one of the most generous giveaways going,” says John Greenwood in The Independent, but up to 250,000 higher-rate taxpayers in company pension schemes are failing to reclaim all they’re due, says Standard Life. If you’re one of them, you could be missing out on thousands of pounds a year. Here’s how to get it back.
Everyone is entitled to tax relief on pension contributions at their marginal income-tax rate, as long as these don’t exceed the annual limit of up to 100% of gross (pre-tax) earnings, capped at £245,000. If you are a non-taxpayer (and you’ve told the tax office) or a basic-rate taxpayer, relief is added automatically. But higher-rate taxpayers in certain types of scheme must reclaim it themselves.
If you have a final-salary pension scheme, or are in your employer’s occupational money-purchase scheme, then full tax relief is given automatically. But if you are in a group stakeholder pension scheme or group personal pension (GPP), then you have to reclaim the full higher-rate tax relief yourself. The easiest way to work out what sort of pension you have is to check your annual pension statement. If it mentions a board of trustees (which both of the former types of pension have), then you are fine. If not, half of your 40% higher-rate tax relief will not be automatically reclaimed on your behalf.
That could be a lot of money you’re missing out on – a full 20% of the contribution to your pension plan. So if you’re earning £70,000 a year and putting 10% of that into your pension, you could be due an extra £1,400 a year.
The good news is that getting your money back is simple. If your finances are straightforward then just contact your local tax office and have them change your tax code. Remember that if you get a pay rise, and your pension contribution goes up as a result, you’ll need to let them know. If your finances are more complex (you’re self-employed, or earn income from more than one source) then you should probably already be filling in a tax return, and the extra relief can be claimed there.
If you’ve been missing out for a while, fear not – you can reclaim relief going back almost six years. You just need to submit a backdated claim. But there are proposals to cut the claim period back to four years, so act quickly. Contact your local tax office and explain your reasons for asking for a rebate. Given that you may have missed out on thousands of pounds, it’s well worth the effort to get it back.