Higher rate taxpayers lose £360m of pension money
According to a recent study, up to 20% of people who are higher rate taxpayers are losing out on 20% of pension money each year, as they fail to claim tax relief on their contributions.
The Public Accounts Committee, whose chair is Meg Hillier, attacked HM Revenue & Customs on the way that it reports tax relief. According to the committee, HMRC “does not make tax reliefs sufficiently visible to support parliamentary scrutiny and public debate”, although it had received recommendations.
When contributions are made to a pension scheme, they attract tax relief at the marginal rate of tax, or the highest rate of tax paid by an individual. While the pension provider automatically claims back the basic rate of tax for a saver, individuals have to claim back the extra 20% or 25% themselves through the self-assessment system. The research revealed that hundreds of thousands of people are missing out on 20% of tax every year, which would have an even higher value if it were reinvested in a pension scheme.
The number of higher rate taxpayers who pay pension contributions has increased, from more than three million in 2010 to nearly five million currently. In addition, auto enrolment means that even more higher earners will miss out on free pension money.
This could equate to higher amounts of pension if reinvested, and millions of savers are losing out. For Wirral residents looking to maximise investments of any kind, it is advisable to seek wealth management advice from a professional.
The tax treatment is dependent on individual circumstances and may be subject to change in future.
Tax Planning advice is not regulated by the Financial Conduct Authority.
