Reports in the Sunday Telegraph suggest that the Government are considering ending the higher rate tax relief on pension contributions.
Higher rate tax relief is available if your pension contributions have been deducted from net pay and you are a higher rate taxpayer. The first 20% of pension tax relief is given as ‘relief at source’, meaning that net contributions into a pension are automatically ‘grossed up’. As an example, £80 of net contributions would be grossed up to £100.
You can claim back the extra 20% in one of two ways:
- Complete a self-assessment
- Call or write to HMRC
Stopping the higher rate tax relief is predicted to save the Government almost £10billion each year. For this reason we think that the reports may have some substance behind them.
As there is no guarantee that things will change, our advice still remains the same for all clients:
- Maximise pension contributions (where affordable)
- Consider using unused pension allowances from previous tax years
Finally, if you are a higher rate taxpayer and are concerned that this valuable benefit may be lost then consider increasing the amount you are paying into a pension during this tax year.
Our advisers will be able to discuss this with you in more details should you wish.