The majority (60.4%) of higher rate taxpayers don’t know they are entitled to extra tax relief on their pension contributions, according to a survey by RBC Brewin Dolphin. This is an urgent matter given speculation that the additional tax relief could be removed or amended in the autumn Budget on 30 October.
People with lower salaries are less likely to know about tax relief. Just 30% of respondents with salaries between £50,000 and £69,999 knew they could claim additional tax relief on their pension contributions. The reverse is true for people who earn more than £100,000, 63.4% of whom were aware of the tax relief rule.
Currently, everyone receives 20% tax relief on their pension contributions, which is automatically applied. Higher and additional rate taxpayers could be entitled to a further 20% and 25% tax relief – a total of 40% and 45%, respectively – but they need to claim it themselves through self-assessment.
Daniel Hough, financial planner at RBC Brewin Dolphin, said: “Far too many higher earners are unaware that they could effectively double the tax relief they are entitled to by claiming for it, either through a financial adviser or by completing self-assessment. It is one of these things that not many people will tell you about unless you have access to professional advice.”
There is speculation that chancellor Rachel Reeves could remove this additional tax relief in the forthcoming Budget. Were she to do so, almost a third (29.6%) of higher earners told Brewin Dolphin they would alter their pension contributions; 17.4% of respondents would contribute less, while 12.2% would pay in more.
Pension savings are not currently treated as part of someone’s estate for inheritance tax purposes but this is another thing the chancellor might change, according to Hough.
Separately, a third (33%) of financial advisers told AJ Bell that their clients are more likely to take tax-free cash out of their pension funds as a result of speculation about tax changes in the Budget. Meanwhile, 16% of advisers said their clients are increasing their pension contributions in preparation for the Budget.