What's Happening?
A recent Freedom of Information response has revealed that many higher rate taxpayers in the UK are missing out on significant pension tax relief due to a lack of awareness about the need to claim it through self-assessment. Former pensions minister Steve Webb highlighted that over £1 billion annually could be unclaimed as taxpayers fail to complete the necessary tax return entries. The issue affects those contributing to pensions under the 'relief at source' system, where additional tax relief must be claimed manually by higher and additional rate taxpayers.
Why It's Important?
This oversight has substantial financial implications for taxpayers, particularly higher earners who could be missing out on thousands of pounds in tax relief. The situation underscores
the complexity of the tax system and the need for better taxpayer education and awareness. For policymakers, this highlights potential gaps in the tax system that could be addressed to ensure taxpayers receive their full entitlements, potentially leading to reforms in how pension tax relief is administered.
What's Next?
As the number of higher rate taxpayers increases, the issue is likely to grow unless addressed. Taxpayers are encouraged to review their pension contributions and ensure they are claiming the full relief available. HMRC may need to consider simplifying the process or increasing awareness to prevent further financial losses for taxpayers. Additionally, taxpayers can make backdated claims for up to four years, providing an opportunity to recover missed relief.
