Pensions  

Higher-rate taxpayers are missing out – Pru

Data from the pensions provider revealed that 26 per cent of UK employees who earn more than £41,451 did not claim higher rate tax relief on their defined contribution schemes.

According to the data, it means the average higher-rate taxpayer could be missing out on £1255 a year in relief if they do not claim the full 40 per cent to which they are entitled.

Clare Moffat, tax specialist for 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.

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“There cannot be many people who would happily give up as much as £1255 a year. Substantial numbers of higher-rate taxpayers can take action to improve their pension savings.”

In the Budget earlier this year the government lowered the starting level for paying higher-rate tax of 40 per cent from £42,475 to £41,451.

Adviser view

Mark Ireland, financial planning consultant for Hertfordshire-based Richmond House Group, said: “I have been in a good position as most of our clients came through professional connections such as accountants so they have already had someone to remind them to do the tax forms and fill this in as part of their self-assessment process.

“That said, I know from experience that some, when asked by their accountant, didn’t know how much they were contributing.

“Sometimes people forget that they can claim the extra tax relief, especially as the personal allowance has risen at the bottom end and the higher rate threshold has dropped so people may now be falling into that higher-rate category without realising that they are now eligible to claim back tax.

“This could strengthen the argument that people do need a financial adviser and advisers should be promoting this more to clients as part of the ongoing review service that we provide post-RDR.”