11 Dec 2013

Reminder: Have you included your pension contributions on your tax return?

Reminder: Have you included your pension contributions on your tax return?

Peter Mutch, Corporate Benefits Director, issues a timely reminder to include your pension contributions if you're a higher rate taxpayer yet to complete your tax return. 

Peter Mutch, Corporate Benefits Director, issues a timely reminder to include your pension contributions if you're a higher rate taxpayer yet to complete your tax return. 

The deadline for completing your tax return is 31st January.

If you're required to complete a tax return and haven't yet done so, remember to include your pension contributions. If you're a higher rate taxpayer this could substantially reduce the tax you pay. It's estimated as many as 425,000 people forget, and overpay up to £850 million in tax every year!

Your pension provider should be able to tell you how much you contributed last tax year (you can't include contributions made by salary sacrifice). If you've already filed your return but didn't claim your tax relief, you may be able to claim it by writing to your tax office with details of your contributions.

Would you like a smaller tax bill next January?

The 31st January deadline is for tax returns for the previous tax year, so a pension contribution today could help you reduce next January's tax bill.

For example, if you pay in £16,000 the government will add £4,000 basic rate tax relief, giving you £20,000 in your pension. If you pay 40% rate tax you could reclaim up to a further 20% tax relief through next January's tax return, reducing your tax bill by up to £4,000. If you pay 50% rate tax you could reduce your tax bill by up to £6,000. The tax relief will depend on your circumstances and to receive full tax relief you must have paid enough tax.

But what's the drawback? If you don't mind locking the money away, we don't think there is one. From age 55 you can normally take up to 25% of your pension as a tax-free lump sum and a taxable income from the remainder. Just remember tax rules may change in the future and the value of investments can fall as well as rise so you may get back less than you invest.

Why settle for second best? Instead of sticking your money in any old pension, why not make it work as hard as possible? Unlike many traditional pensions, a Self Invested Personal Pension lets you invest almost anywhere, from leading funds and shares, to cash and bonds. You are in control and can manage it how you like.


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