Over the three year period PensionBee found that an average of 80% of higher rate taxpayers eligible to claim relief through their Self-Assessment tax returns failed to do so, while an estimated 53% of additional rate taxpayers inadvertently left tens of millions of pounds to the Chancellor.
Figures obtained via freedom of information requests to HMRC show that the number of taxpayers neglecting to claim beyond the basic rate of tax relief has remained consistent at around 1 million between 2016/17 and 2018/19 for higher rate taxpayers, while reducing from its three year peak of 72,262 in 2017/18 to 58,690 in 2018/19 for additional rate taxpayers.
For higher rate taxpayers in 2018/19 alone this equated to an estimated £756.2 million in unclaimed tax relief on personal pensions, slightly down from £769.4 million in 2017/18. In the case of additional rate taxpayers, an estimated £54.6 million went unclaimed in 2018/19, compared to £60.5 million in 2017/18. Between 2016/17 and 2018/19 higher rate taxpayers failed to claim a total of £2.3 billion while additional rate taxpayers overlooked a total of £164.7 million over the same three year period.
In order to claim tax relief on their pension contributions, eligible higher rate and additional rate taxpayers would need to complete a Self-Assessment, even though they are employed and usually handle their tax matters exclusively via payroll (PAYE).
In comparison most eligible basic rate taxpayers fall under the relief at source system for personal pensions, which had 9.4 million consumers in 2018/19, and requires pension providers to claim basic rate tax relief of 20% on behalf of their customers and put it in their pensions. For example, if a basic rate taxpayer pays £100 into their pension, the provider would claim £25 from HMRC and put it in the customer’s pension, bringing the total contribution to £125.
Romi Savova, CEO of PensionBee, commented: “Tax relief is a vital incentive that encourages people to save efficiently towards their retirement and too many people continue to miss out on this crucial benefit.
Research shows that consumers on lower incomes, and particularly women, do not receive any of the tax benefits that come with pension saving, because they are currently under the basic rate threshold. While at the other end of the spectrum, today’s analysis shows that millions of high earners are also missing out by not completing their Self-Assessment.
The dual system is too complex and radical reform is long overdue. We’re calling on the Chancellor to scrap differential rates of tax relief, which are incredibly costly and complicated to understand, in favour of a system that truly rewards everyone for putting money away for their retirement. A universal rate of 25% will level the pensions playing field and put a stop to consumers across all tax brackets missing out.”
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