Money down the drain: Higher rate taxpayers miss out on £230m by not claiming pensions tax relief

      More than 180,000 higher rate tax payers are missing out on an estimated £230million of 'free money' by failing to claim tax relief on their pension contributions.

       Research from Prudential has found that a quarter of higher rate taxpayers on money purchase pension schemes fail to claim the full relief, which means around £229million is unclaimed each year.

     People in the higher rate tax bracket can top up their pension savings by 40 per cent through tax relief, so that a £100 contribution to their pension pot only costs them £60.

      

     Throwing money away: Many higher rate taxpayers with personal pensions are failing to claim higher rate tax relief on their pension contributions.

Higher rate taxpayers on workplace pension schemes should receive their tax relief automatically through their payroll.

    But not every occupational pension will do this, as some operate as Group Personal Pension and stakeholder schemes, which only provide 20 per cent tax relief automatically, meaning some people on workplace pensions may be unaware they are not getting their full entitlements.

    Those with individual personal pensions meanwhile, such as Sipps and stakeholder pensions, will also have to claim back the extra 20 per cent.

    To get the rest, these people will need to fill out an annual self-assessment tax return, or can call HMRC to get back previously unclaimed relief.

    The actual figure going unclaimed could be even higher than £230million, with 15 per cent of higher rate taxpayers surveyed by Prudential saying they're unsure whether or not they're claiming the extra relief.

     Clare Moffat, Prudential's tax expert, said: 'Failing to claim higher rate pension tax relief can have a major impact on income and it is clear that a substantial number of higher rate taxpayers are not claiming relief they are entitled to.

    'It can be worth as much as £1,255-a-year and there cannot be many people who would happily give up as much. Substantial numbers of higher rate taxpayers can take action now to significantly improve their pension savings.'

 

     The 40 per cent tax rate kicks in on earnings above £41,451-a-year, while the 45 per cent rate kicks in at £150,000.
Prudential found that 78 per cent of the 900,000 higher rate taxpayers on defined contribution personal pensions will typically pay 10 per cent of their average salary of £62,774 into their pension.

    A monthly contribution of £523 would be topped up by £104 in tax relief under basic rate tax relief, but this would double to £208 if higher rate tax relief was claimed back.

    But those who have not claimed their relief in previous years can still do so, as the Government allows those who fill out annual tax returns to claim back relief on contributions dating back to the 2011/12 tax year.

     Meanwhile those who don't fill in tax returns can go back even further, claiming tax relief as far back as 2009/10, though they must submit their claims before October 31 to get relief for this year, after which they can only claim back as far as 2010/11.