According to figures from the Taxpayers Alliance, the average family will pay over £650,000 in tax over their lifetime. But, if you are in the 25% of highest incomes of £80,000 a year your tax is double at £1.3m.
Naturally it makes sense to do everything possible ensure you do not miss out on obvious tax breaks. So, it came as a surprise to discover that, according to research from Prudential, an estimated 182,000 higher rate taxpayers are missing out on pension contributions tax relief worth around £229 million.
Over a quarter of people surveyed who are paying pension contributions are not claiming the additional tax relief on their pension contributions. The research found the average person is turning their back on £100 a month.
The good news is that it is possible to reclaim tax relief you have missed out on and that claims can be backdated for up to three tax years.
To make sure you are not missing out on tax savings book a tax planning review.
The problem possibly lies in the fact that Pensions are still quite poorly understood. They can be quite complicated and the rules and constant rule changes certainly don’t help. So here is a quick explanation of why so many people might be missing out on tax relief. When you make a contribution to a Pension you decide how much you put in, let’s say £100. But what you actually invest is £80 because 20% tax relief is automatically paid in toy our Pension by HMRC. Your Pension provider will claim this for you on your behalf. However if you are a higher rate tax payer then you have only so far received half of the income tax rebate you are owed.
To claim the other half you need need declare n your tax return that fact that you have made Pension contributions. Based on the amount of contributions made and your income for the year HMRC will then pay you 20% additional tax relief to the extent that you have paid higher rate tax. Many seem it would appear are failing to do the second bit.