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Wrong assumptions lead to wasted high rate tax relief
Taxpayers are losing millions of pounds a year by failing to claim the full pension tax relief to which they are entitled, a trust and estate adviser has warned.
Simon Bonnett, head of financial planning for London-based Duncan Lawrie Private Bank, said individuals in the highest tax bracket wrongly assume personal contributions paid to their company pensions automatically get up to 50 per cent tax relief.
However, they only get the basic rate of 20 per cent, meaning they could be missing on on substantial amounts of tax relief.
He said: “Higher-rate taxpayers are responsible for filling in their own self-assessment tax forms and claiming tax relief on their pension contributions. However, many individuals fail to do so, in the mistaken belief their employers will have claimed the full personal tax relief on their behalf.”
The individuals affected are in what are known as contract-based schemes. These are new types of defined contribution pension schemes that include group personal pensions, stakeholder pensions and group self-invested personal pensions.
Mr Bonnett said an individual in such a scheme who makes a pension contribution of £10,000 may be losing £2000 to £3000 pounds a year, and that the government has now shortened the window in which tax relief can be claimed retrospectively.
He said: “It used to be possible to claim rebates back over seven years, but now the HMRC will only allow four years. This makes it imperative that individuals get these claims in now, before it is too late.
“There are substantial sums involved here, so it is really in everybody’s interest to meet the January deadline for these valuable benefits.”
