High-earning expat workers paying into UK pensions could be missing out on millions of pounds because they do not claim back higher-rate tax relief.
The warning comes from pension providers as the tax return season starts counting down.
All pension contributions pick up 20% basic relief automatically, but higher rate taxpayers must claim the addition relief by filing a self-assessment tax return in the UK.
The worry is that thousands of expats workers who are tax resident in the UK believe they do not have to make tax return and as a result are missing out on the cash.
One pension firm, Prudential, worked out that 26% of employees earning more than £41,451 a year do not claim the extra pension relief, with the average higher rate taxpayer missing out on £1,255 going into their pension fund each year.
How to claim higher rate pension relief
The figure is likely to be an underestimate for many expat retirement savers who are likely to put money into a self-invested pension plan (SiPP) or small self-administered scheme (SSAS).
The firm reckons more than 180,000 higher rate taxpayers with pensions are missing out on the extra relief – which adds up to £229 million a year going unclaimed.
Time is running out for expats who have not claimed the relief.
The deadline for claims is October 31. Any expat who makes a claim before then can ask for unpaid relief dating back until April 6, 2009.
Tax returns rules only allow taxpayers to file new returns and amend the previous year’s filing, which can be carried out online. For dates before April 6, 2012, taxpayers have to write to their tax office.
For anyone considering a switch to a Qualifying Recognised Overseas Pension Scheme (QROPS) and who has not claimed the relief, they can top up their fund by applying for the back-dated cash and then switch their pension offshore without any penalty.
Who can claim pension relief
The result is increasing the fund by around an extra £5,000 before the transfer offshore.
Pension firms also suggest many retirement savers are not aware they are owed the money as the higher rate tax threshold has been reduced in successive budgets.
The extra relief applies to anyone contributing to a pension who pays tax at 40%, 45% or at the former 50% rate.
Clare Moffat, Prudential’s tax expert, said: “Not claiming higher rate pension relief can significantly dent the value of a pension pot and there’s no reason why anyone should not ask for what they are due. After all, pension contribution relief is one of the main benefits of saving into a scheme.”
