Missing the Self-Assessment deadline not only risks a penalty for late filing but could cost individuals hundreds, if not thousands, of pounds in unclaimed tax relief, according to PensionBee.
As the deadline for Self-Assessment for the 2024/25 tax year looms, PensionBee, a leading online retirement savings provider, explains who might need to file and how completing one can boost your pension savings.
Those receiving income from self-employment, untaxed earnings such as tips and commissions, renting out property, savings and investments, or from gains on assets that incur Capital Gains Tax, will need to complete a Self-Assessment tax return. Those earning over £60,000 and claiming child benefit, as well as higher and additional rate taxpayers looking to claim extra tax relief on pension contributions or charity contributions, also need to file before the 31 January deadline.
1. Higher earners can claim extra tax relief
In the five-year period between 2016 and 2021, PensionBee estimates that around £1.3 billion was left to HMRC in unclaimed tax relief from higher and additional rate taxpayers. Only basic rate relief of 20% is added automatically to pension contributions by providers operating ‘relief at source’ pension schemes. Remember that on a personal pension you need to enter the gross value of contributions - this includes the tax relief on top. For example, if you have contributed £8000, the gross amount after tax relief is added is £10,000.
If you earn more than £50,270 and pay into a ‘relief at source’ pension, you might need to fill out a Self-Assessment return to claim your extra tax relief, which is an estimated to be £425 on average for a higher rate taxpayer. Higher-rate taxpayers can claim up to 40% total tax relief, and additional-rate taxpayers up to 45% total tax relief.
2. Tax relief from previous tax years can be carried forward
To claim tax relief on pension contributions, total contributions must be within the standard annual allowance of £60,000 for the 2024/25 tax year, but this reduces to an amount between £10,000 and £60,000 if you earn over £200,000, known as the tapered annual allowance. Savers who exceed the annual allowance can use the ‘carry forward’ rule to apply unused allowances from the previous three tax years. This can be particularly beneficial if you’ve had a lower income in previous tax years or if you’ve recently experienced a spike in earnings. To use carry forward, you must have been a member of a UK-registered pension scheme in the tax years you wish to carry forward from.
3. If you’re self-employed, pension contributions can reduce your taxable income
If you’re self-employed, pension contributions can reduce your taxable income, helping you save on tax while building your retirement savings. Contributions are treated as a personal expense eligible for tax relief rather than a business expense, so they reduce your taxable income directly. For example, if you earn £60,000 and make £10,000 in pension contributions, your taxable income is reduced to £50,000, potentially lowering your overall tax bill.
Unlike employees in workplace schemes, who typically receive automatic tax relief, self-employed individuals need to claim this relief actively, usually through Self-Assessment.
4. It’s a chance to review your overall financial situation
Completing a tax return is an opportunity to review your overall financial situation and make adjustments if necessary. It’s essential to check with your employer or financial adviser to confirm that tax relief has been applied to your pension contributions - or if a claim needs to be made.
Even if you’re not eligible for additional tax relief this year, reviewing your income, savings, and tax situation holistically ensures you’re making the most of available opportunities and could help avoid missing out on future benefits.
Lisa Picardo, Chief Business Officer UK at PensionBee commented:
“It’s estimated that over 5 million taxpayers are yet to fill out their Self-Assessment form for the previous tax year, so getting your ducks in a row before 31 January is crucial.
“For many, completing a tax return could unlock unexpected pension benefits. If you’ve changed jobs, started self-employment or entered a higher tax bracket, filing ensures you don’t leave valuable tax relief unclaimed.
“Our tax relief calculator can help provide clarity on how much tax relief could be added to your pension pot, and help you understand whether or not you may need to file a Self-Assessment tax return to claim a portion of it.”
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