- Many people believe only the self-employed have to fill in a self-assessment tax return, but this is not the case.
- If you are a higher rate taxpayer you should check whether you need to file a self-assessment return.
- If you don’t you run the risk of missing out on tax relief on your pension. You also need to declare whether you have breached annual or lifetime allowances on your pensions.
- Many high earners choose not to claim Child Benefit because they incur the High-Income Child Benefit tax charge and don’t want to fill out a tax return. However, by not doing this they miss out on vital National Insurance credits that can count towards their state pension.
- HMRC will not tell you that you need to fill out a self-assessment form -you will need to contact them to let them know you need to do this.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown:
“Self-assessment tax returns are not just for the mega-wealthy and self-employed. While your employer may take care of paying your income tax there are still instances where you need to fill in a tax return or risk falling foul of hidden pension pitfalls. Doing this means you don’t miss out on vital benefits and also makes sure any tax charges you may incur are dealt with in a timely manner.
Higher rate taxpayers should consider filing a return as you risk missing out on tax relief on your pension contributions and in some cases National Insurance credits that count towards your state pension. Claiming these things can have a huge impact on how much you end up with in retirement. If you have potentially breached your annual or lifetime allowances in your pension, then letting HMRC know via your tax return is hugely important.
HMRC won’t tell you if it thinks you need to fill in a tax return so it’s best to get in contact with them as soon as possible to make sure you have everything you need to get cracking.”
Things you need to mention on your tax return
- You can claim higher rate tax relief on pension contributions
Your provider will automatically claim 20% basic rate tax relief for you. However, if you are a higher (40%) or additional rate taxpayer (45%) you will need to claim the extra 20% and 25% on your tax return to make sure you benefit from it. If you forgot to claim tax relief for a previous year, you can do so up to four years after the end of the tax year you are claiming for. The extra money can really make a difference to what you end up with in retirement. In Scotland the tax rates are slightly different with higher rate tax 41% and additional rate 46%.
- Have you breached your annual allowance?
If you have breached your annual allowance you will need to let HMRC know as a tax charge has been incurred. Most people can contribute up to £40,000 a year to their pension without breaching the allowance but if you are a high earner or have already accessed your pension then your annual allowance will be lower.
If you have already taken income from your pension you will trigger the money purchase annual allowance which means your annual allowance is slashed to £4,000. If you have an adjusted income of more than £240,000 and a threshold income of more than £200,000 you will fall foul of the tapered annual allowance which can also reduce your annual allowance to as low as £4,000.
Your pension provider will send you a statement if you go over the annual allowance. If you have several pensions you may need to ask them all for a statement so you can make sure you haven’t breached the allowance. Either you or your pension provider must pay the tax charge. Fill in the ‘Pension savings tax charges’ section on your tax return to tell HMRC about the charge.
- Have you hit your lifetime allowance?
The current lifetime allowance is £1,073,100. Anything more than this is subject to a tax charge. This is usually paid by the scheme administrator from the pension pot rather than directly from the individual.
- High Income Child Benefit Tax Charge
If you earn over £50,000 and claim child benefit you will be liable for the High-Income Child Benefit tax charge which would need to be paid through self-assessment. The charges increase gradually depending on how much you earn and for those earning £60,000 it equals the total amount of the Child Benefit. This led to many people choosing not to claim Child Benefit because they had to repay it through their tax return but by not claiming Child Benefit you will 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, so you don’t have to pay the charge.