Yet again, I have discovered from a new client, that he was totally unaware of his ability to claim higher rate tax relief on his pension payments.
HM Revenue & Customs have never really advertised this tax relief to employees. Basically it works thus:-
Your employee or personal pension payments go into a pension fund. The fund then claims 20% tax relief and adds this amount to your personal pension plan (PPP). For example, you pay £100 per month, the fund claims £25, (100 ÷ 0.8 x 0.2) and a total of £125 has been paid into your PPP.
However, if you are a higher rate or top rate tax payer, you are entitled to a further 20% or 30% tax relief. This is paid to you via your taxable income. The basic rate tax band is extended by the total tax year’s gross pension payments. In this example for the year ended 5th April 2014, 12 x £125 = £1,500. The basic rate tax band increases from £32,010 to £33,510. This enables a further £1,500 of taxable income to be taxed at 20% instead of 40% or 50%. This is claimed via a tax return if you are a self assessment tax payer or an increase in your PAYE tax code.
So, where does the blame lie for the lack of knowing this claimable tax relief?
Not with the pension fund, as their annual pension statement advises you of the availability of higher rate tax relief.
Perhaps it lies with you, for not reading and taking on board this narrative? But then again, who really does read the entire blurb sent with your annual pension statement?!
Perhaps it is your Independent Financial Adviser’s fault for not highlighting the relief? Or your bank? Or even your HR Department?
I can guarantee you however that HM Revenue & Customs will not accept the blame!!
So what to do about it. Well, HM Revenue & Customs used to allow you to claim for the last 6 tax years, but a couple of years ago, they surreptiously reduced this to 4 years. Until 5/4/14, you can claim back to 2009/10 for this tax relief. If you do not complete tax returns, then any claim must be corresponded to HM Revenue & Customs.
If you need assistance to make the claim, please contact Mitch Clark on telephone 01444 416376.