Have You Declared Pension Growth On Your Tax Return?

If you're a high-earner, you could be hit with a huge tax bill for failing to report any pensions growth on your tax return ...

You may have noticed questions about pension contributions on your self-assessment form. Anything above your annual allowance needs declaring, including growth in Defined Benefit (DB) and cash paid into Defined Contribution (DC) pensions.

"You must pay tax on this at your marginal income tax rate of either 40% or 45% depending on your income!"

HMRC recently confirmed that many taxpayers have left the answer to this question blank on their return. This potentially means that thousands of individuals could have failed to declare large pension inputs and will face large bills when HMRC finally catches up with them.

In a recent communication to pension schemes, HMRC wrote, "scheme members are forgetting to declare details of their annual allowance charge on self-assessment returns".

It's worth noting that pension schemes only need to notify members if they have passed the £40,000 annual allowance limit. Some people have a much lower annual allowance, however, they may not be aware that the rules are so complicated.

Tapered annual allowance rules mean that £1 or annual allowance is lost for every £2 of income above £150,000 a year. Once income exceeds £210,000 the annual allowance bottoms out at £10,000.

Director of policy at Royal London, Steve Webb, said:

“The shocking saga around the annual allowance for pension tax relief gets worse. We now have HMRC admitting that they know that people are forgetting to put information about their pension tax bills on their annual return.

But filling in this tax return question requires individuals to understand the system, especially if they are affected by the tapered annual allowance."

If you're at all worried that you failed to declare this information on your self-assessment tax return, then I strongly advise you seek professional tax advice before HMRC present you with a huge bill.

If you'd like to find out more about anything I've written here, do call me on 01908 774323 or leave a comment below and let's see how I can help you.