Don’t forget the tax relief

Jan 15, 2016 | Tony Byrne's View

We recently spoke with a client who pays £500 into their pension from their bank account. The client is a higher rate tax payer and so is entitled to higher rate tax relief. Basic rate tax relief is 20% and higher rate tax relief is 40%. You might find it amazing, but if you make a £100 contribution to your pension and are a basic rate tax payer, the tax relief is not £20 but £25! This is because you need to ‘gross up’ the payment. This means paying £80 to get £20 tax relief. This makes an incredible difference for higher rate tax payers because they get 40% of tax relief on a £100 payment. But here’s the thing: whereas basic rate relief is given automatically, you must claim higher rate relief. Our client had not been doing this. If you make payments into a pension and are a higher rate tax payer, you must reclaim the additional relief. To do this you must complete an annual self-assessment tax return. If you have not done so, you can go back four years to claim unused relief. To do this, you will need to send a letter to your tax office with details of your claim.

Our Scorecards

Try out our quick and free assessments; your personalised reports will instantly be created.

Useful guides

We've created two useful documents to help you find a Independent Financial Adviser and make sure you get the most from them.

16 Questions To Ask Your Independent Financial Adviser

How to find an Independent Financial Adviser

    To download this file, please fill in your information below.