Higher Rate Tax Payers are Missing out on Pension Relief
According to new figures released by Prudential, higher rate tax payers could be missing out on a collective £1bn a year by not contributing to a pension scheme, and taking advantage of the tax relief pensions afford.
Data from HM Revenue and Customs showed that of the 4.4m higher rate tax payers around a million were not contributing to a pension scheme. This means they are missing out on pension tax relief. Tax savings will change again if they are in a scheme which can benefit from Pension Freedom which comes into play in April this year.
Moreover, Prudential’s research showed that tax payers were unaware of the tax savings possible by investing in a pension. Of 382 higher rate tax respondents earning between £41,185 to £150,000 per year, nearly a quarter of pension contributors were unsure whether they had reclaimed the full amount of tax relief on their contributions.
How much tax can I save by investing in a pension?
If you earn around £50,200 a year, 5% contributions would save you around £1000 per year in tax. If you have a personal pension scheme, and or part of a group personal pension, self invested personal pension, or a stakeholder scheme you will only receive 20% tax relief automatically. To get your full tax relief you need to state this in your annual tax return or inform HMRC. Claims can be backdated as well. So if you feel you have missed out on previous years, you can still get your tax relief.
Prudential’s Clare Moffat highlighted the fact that many households were trying to save money here and there, and yet could save a great deal more by contributing to a pension scheme.
She said: “With an annual average of £1,000 in tax relief available to higher rate taxpayers, it makes sense for people to maximise their contributions and make sure they’re getting all the relief they are due.
“Additionally, those who make regular pension contributions will potentially receive valuable employer contributions and therefore benefit from an even greater boost to the eventual value of their retirement pot.”
Tax and the Expat Community
Tax is a complex issue if you are a UK resident and live in the UK. It becomes even more difficult if you are an expat, where emergency tax and exchange rates often raise their ugly heads. In all instances where pensions and tax are concerned, you are best to seek the help of a financial professional who can offer you impartial advice.
I have years of experience in pension planning, retirement, and tax planning, and can help you make your pension choices the best they can be. A service like this becomes especially valuable as the tax threshold is set to increase to £42,385, and Pension Freedom could be a complete game changer in terms of pensions and tax. This is set to come into play in April 2015.
So get the most from your pension and contact me today. Click here and complete the Call Back Service form.
Source: FT Adviser