As auto-enrolment has now been in place since 2012, many members of workplace pension schemes have been enrolled for a while, and allow the scheme to tick over without much additional input.
Chances are that the majority of those that have been automatically enrolled into a pension scheme will be basic rate tax payers and contributions are taken from net pay (after tax has been deducted).
If contributions are taken this way members will be benefiting from the 20% government tax relief that these personal contributions attract.
However, what if you are earning more and paying income tax at 40% or even 45%?
Whilst your contributions will benefit from the same 20% government tax relief, you can also claim a further 20% or 25% tax relief depending on the rate at which you pay income tax.
This is not something that is done automatically and the responsibility lies with you to make this claim with HM Revenue and Customs (HMRC). You can do this in one of two ways:
- contacting your local tax office and getting your tax code adjusted (for those paying income tax at 40%)
- claiming the extra tax relief at the end of each tax year through self-assessment (for those paying tax at 40% or 45%)
According to research from Prudential, around 60% of higher rate tax payers are failing to claim their tax relief. This unclaimed tax relief is estimated at £296 million a year.
Furthermore, you can go back and reclaim tax relief for the previous three tax years (assuming you were an active member of a pension scheme during these years).
If you think you may be eligible to claim additional tax relief on your contributions you can visit the go.uk website
for further information and details of how to get in touch with HMRC.
Alternatively, if you would like further advice about how we can help you benefit from the available tax reliefs please contact me
or one of my colleagues