Pension tax tips pre-return

These tips help taxpayers get all the pension tax relief to which they are entitled or to avoid an unexpected tax bill in years to come.

1. A) Claim higher rate relief on personal pension contributions:

Many pension savers who pay income tax at the higher (or additional) rate, may be unaware that they need to claim higher rate relief through their tax return on contributions into a personal pension. Employee contributions into a personal pension or group personal pension automatically attract pension tax relief at the basic rate through the ‘relief at source’ method. This tax relief is claimed by the pension provider on behalf of the member.

But those who pay tax at the 40% or 45% rate only get their extra tax relief if they claim it through their tax return. For example, someone who pays £80 into a personal pension automatically gets an extra £20 in basic rate relief added to their pension. But if they pay tax at 40% they are entitled to another £20 in tax relief which they will only get if they enter this information on their tax return.

1. B) Report contributions in excess of your annual allowance

Individuals are expected to report on their tax return any pension contributions (from themselves or their employer) into a Defined Contribution pension and/or any growth in Defined Benefit pension rights in excess of the Annual Allowance, so that additional tax can be paid.

1. C) Report contributions made on your behalf under ‘scheme pays’

HMRC recently admitted that some taxpayers were failing to report on their tax return that a pension tax charge had been paid on their behalf by their occupational pension scheme. A new FOI obtained by Royal London shows that in 2016/17 just over 1,000 people failed to report this information. As the number of people affected by ‘scheme pays’ has grown rapidly since 2016/17, it is likely that thousands of people are now failing to report this information. The FOI from HMRC says that this is a case of ‘under-reporting, not under-payment’, but taxpayers are expected to give complete information on their tax return.