A recent ‘Supplementary forecast information release’ from the Office for Budget Responsibility (OBR), looking at the potential impact of applying National Insurance to salary sacrifice pension contributions, is not the easiest read. Like much pension-related analysis, it is full of technical language and acronyms such as OpRA, RAS, and ASHE.
However, within the detail lies an important insight.
When estimating the additional tax revenue that could be generated from changes expected from 2029, the OBR has assumed that 10% of the higher and additional rate pension tax relief through relief at source schemes goes unclaimed. This is lower than the estimate across the wider population.
Based on this assumption, the changes are expected to result in a permanent increase in government receipts of around £0.2 billion by 2030/31.
The key takeaway is that a notable proportion of pension tax relief is still being missed, particularly by higher earners, highlighting the importance of reviewing whether you are claiming everything you are entitled to.
The RAS approach gives instant automatic basic rate tax relief – even to non-taxpayers – but if you pay tax at more than the basic rate, you need to claim the extra relief due from HMRC. Using the same £100 gross contribution example, if you are a higher rate taxpayer, you would receive £20 basic rate relief immediately and claim the balance of your tax relief (£20, or £22 if you are a Scottish higher rate taxpayer) from HMRC, either by contacting them directly or via your self-assessment return.
What the OBR is saying is that, in practice, more than one in ten people currently do not make that claim, to their personal disadvantage, but to the benefit of the Treasury. That could be for a variety of reasons, including the fact that a frozen higher rate tax threshold has dragged many former basic rate taxpayers into the higher rate club.
If you think you might be one of those unwittingly helping the Chancellor, a simple starting point is to check with your financial adviser.
The value of your investment and any income from it can go down as well as up, and you may not get back the full amount you invested.
Tax treatment varies according to individual circumstances and is subject to change.
The Financial Conduct Authority does not regulate tax advice.
* OpRA = Optional Remuneration Arrangements; RAS = Relief At Source; ASHE = Annual Survey of Hours and Earnings
Comments are closed.