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Higher-rate taxpayers – have you completed your self-assessment?

Many believe only the self-employed and those with loads of investments must fill in a self-assessment tax return, but this isn’t the case.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

If you’re a higher-rate taxpayer, you should consider filing a tax return as you might risk missing out on tax relief on your pension contributions. Basic-rate tax relief is usually collected automatically, but higher earners will need to claim their extra tax relief through self-assessment.

You can claim tax relief for the last four tax years which can have a huge impact on your finances. You can also let HMRC know if you’ve breached your annual allowance pension contribution limit using a tax return.

This article could help with what to include in your tax returns to avoid hidden pension pitfalls, but it’s not personal advice. Pension and tax rules can change, and any benefits depend on your circumstances. If you’re not sure what’s right for your circumstances, ask for financial advice. For more complex tax calculations please seek specialist advice from an accountant.

Things you need to mention in your tax return

How much you’ve paid in pension contributions

If you’re a UK resident under 75 who makes personal contributions to a pension, you’ll get tax relief on the amount you've paid in (provided this doesn’t exceed your earnings).

Your provider will automatically claim 20% basic-rate tax relief for you. But if you’re a higher (40%) or additional-rate (45%) taxpayer, you’ll need to claim the extra 20% or 25%. But to claim it you’ll need to declare your pension contributions on your tax return.

It’s important to include the gross value of your pension contributions. That’s the total of what you’ve paid in (your personal contributions), plus the 20% tax relief from the government.

The additional tax relief will then either be paid to you directly, or HMRC will adjust your tax code or reduce your tax bill.

If you forgot to claim tax relief for a previous year, you can do that up to four years after the end of the tax year you’re claiming for. Tax rates are different in Scotland.

If you earn under £100,000 per year, you’ll benefit from an annual tax-free personal allowance of £12,570 this tax year. But if you earn over £100,000, you’ll lose your tax-free personal allowance at a rate of £1 for every £2 of income over £100,000. This means your personal allowance is zero if you earn £125,140 or more.

Pension contributions can reduce your adjusted net income, meaning you could reclaim some or all of your personal allowance and so pay less income tax. This is another reason to make sure you include them on your tax return. But it’s important to be aware of pension rules and allowances.


Let HMRC know if you’ve breached your annual allowance

If you’ve potentially breached your annual allowance in your pension, it’s important to let HMRC know through your tax return. HMRC won’t tell you if it thinks you need to fill in a tax return. It’s best to get in contact with them as soon as possible if you think you’re affected. Doing this makes sure you don’t get hit with any unexpected tax charges.

Most people can contribute up to whichever is higher of their annual earnings or the annual allowance of £60,000 to their pension each year, without incurring a tax charge. However, if you’re a high earner or have already accessed your pension, your annual allowance could be lower.

If you’ve already taken income from your pension, you might have triggered the money purchase annual allowance. This would mean your annual allowance is slashed to £10,000 for contributions to money purchase pensions, like the HL SIPP.

If you have an adjusted income of more than £260,000 and a threshold income of more than £200,000, you’ll fall foul of the tapered annual allowance. This can also reduce your annual allowance to as low as £10,000.

However, you could still benefit from saving more than your annual allowance into your pension while still benefitting from tax relief. You might be able to do this by using any unused allowance from the three previous tax years. This is known as carry forward. But if you’ve triggered the money purchase annual allowance, you can’t use carry forward to contribute more than £10,000 to money purchase pensions.

If you go over the annual allowance, your pension provider will send you a statement. If you have lots of pensions, you might need to ask them all for a statement so you can make sure you haven’t breached the allowance.

If you have, and you don’t have enough annual allowance from the previous three tax years which you can carry forward, you’ll be subject to a tax charge. Fill in the ‘Pension savings tax charges’ section on your tax return to tell HMRC about the charge.

Please also remember that money in a pension cannot usually be accessed until age 55 (57 from 2028).


Mention if you’re claiming Child Benefit

If you earn over £50,000 and claim Child Benefit, you’ll be liable for the High-Income Child Benefit tax charge which would need to be paid through self-assessment.

The charge increases gradually depending on how much you earn, and for those earning £60,000 or more, it equals the total amount of the Child Benefit.

This could lead to many people choosing not to claim Child Benefit because they have to repay it through their tax return. However, by not claiming Child Benefit, you’ll miss out on National Insurance credits that count towards your state pension.

You also have the option to sign up for Child Benefit but opt not to receive it. That way you don’t have to pay the charge.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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