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Taxpayers missing out on GBP500m, warns Duncan Lawrie

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UK taxpayers could be losing up to GBP500m a year by failing to claim the full pension tax relief to which they are entitled. It is estimated that 250,000 people in the highest-earning tax bracket wrongly assume personal contributions paid to their company pensions automatically receive up to 50% tax relief, when in fact it is only the basic rate of 20%, says Simon Bonnett, head of financial planning at Duncan Lawrie Private Bank…

Higher rate tax payers are responsible for filling in their own self-assessment tax forms and claiming tax relief on their pension contribution. However, many individuals simply fail to do so, in the mistaken belief that their employers will have claimed the full personal tax relief on their behalf.

An individual who makes a pension contribution of GBP10,000 may be losing out to the tune of two or three thousand pounds a year. On this sort of calculation, it could be that a massive GBP500m a year is being kept by HM Revenue and Customs and not returned.

The individuals affected are in what are known as “contract-based” schemes. These newer sorts of defined contribution or money purchase pension schemes include group personal pensions (GPPs), stakeholder pensions and group self-invested personal pensions (SIPPs ). Contract-based schemes are the fastest-growing in the pensions sector because so many employers are closing final salary arrangements.

Only basic-rate tax relief of 20% is automatically given by the Revenue. The remaining entitlement has to be claimed by individual staff through the self-assessment forms they submit to HMRC. People in conventional occupational money purchase pension schemes, as opposed to contract-based ones, enjoy full tax relief granted at source.

Individuals need to act now, as the deadline for claiming tax relief for the past financial year is 31 January 2012. He says it may be possible to backdate claims for past years, but HMRC has tightened the rules.

It used to be possible to claim rebates back over seven years, but now the Revenue will only allow four years. This makes it more imperative that individuals get these claims in now, before it’s 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.
 

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