Many people saving through personal pensions, including employer facilitated GPPs and Group Stakeholders, are only getting half of the tax relief they are due, says pension provider Standard Life.
These schemes automatically give individuals basic rate tax relief, but it is up to the individual to re-claim higher rate relief if they are eligible.
However, for the many people who don't complete a self-assessment this requires action on their part. Some people miss out through apathy, or because they don't know the onus falls on them.
The good news is that if someone discovers they could have claimed this relief in previous years they can make a backdated claim for the money due to them. However, the Government is reducing the time limit for making these claims from nearly 6 years to 4 years from 6 April 2010.
“It's no secret that higher rate tax relief is an exceptionally valuable benefit but, despite that, many people are not aware they need to ask for this extra relief,” said Andrew Tully, Senior Pensions Policy Manager at Standard Life.
“Claiming your tax is straightforward as you simply have to write to your local tax office. But the clock is ticking, so taking action now could save you money.
“Given the current financial climate, a cheque from the Revenue will come as a welcome bonus.”
• There are nearly 3 million higher rate taxpayers in the UK
• People in occupational pension schemes get higher rate relief automatically. However those in personal pensions need to claim this additional amount.
• Standard Life estimate a quarter of a million people do not claim higher rate tax relief.
• Backdated claims can be made, but the time limit is reducing after April 2010 from 5 years 10 months to 4 years.
• To obtain the extra 20% relief people either need to complete a self-assessment return or ask the local tax office to change their tax coding. The additional tax relief is given to them allowing them to spend it as they wish.
• The time limit for claiming repayments is currently five years and ten months from the end of the period for which the return was made. However changes introduced by the 2009 Finance Act means that after 5 April 2010 claims must be made within four years. There is a small transitional window as shown below, illustrating that early action can make a big difference –
Year in which payment made Time Limit for claiming higher rate relief
2003/04 31 January 2010 (existing position before Finance Act changes)
2004/05 31 March 2010 (previously 31/1/11)
2005/06 5 April 2010 (previously 31/1/12)
2006/07 5 April 2011
2007/08 5 April 2012
2008/09 5 April 2013
Examples - how does it work?
• Simon earns £100,000 a year and pays 6% (gross) of his salary to his group SIPP.
• He pays in a net contribution of £4,800, which is automatically grossed up to £6,000.
• Simon finds out that he has been missing out on his higher-rate tax relief for five years. He is entitled to a tax rebate of £1,200 each year.
• He makes a backdated claim to HM Revenue & Customs for the four previous tax years and the current tax year, recouping 5 x £1,200 = £6,000.
• Alison has earned £50,000 for the last 4 years and pays 5% (gross) of her salary to her group personal pension.
• She pays in a net contribution of £2,000, which is automatically grossed up to £2,500.
• Alison finds out that she has been missing out on his higher-rate tax relief for four years. She is entitled to a tax rebate of £500 each year.
• She makes a backdated claim to HM Revenue & Customs for the three previous tax years and the current tax year, re-couping 4 x £500 = £2,000.
All personal and stakeholder pensions, including GPPs, Group Stakeholders and Group SIPPs, as well as some occupational schemes use the ‘relief-at-source' payment method.
This means basic tax relief is automatically added to the pension pot by the provider who, in turn, re-claims the amount from HM Revenue & Customs. So, in simple terms, for every £80 someone pays, £100 ends up in the pension scheme.
People earning above £43,875 in this tax year may be able to claim a further 20% relief (depending how much income is liable to higher rate tax). It is estimated a quarter of a million people do not claim this relief - either through apathy, or because they don't appreciate that it isn't given automatically.
Backdated claims can be made, but the time limit is reducing so taking action now could create valuable
savings.
