Thousands could face ‘huge’ tax bills for failing to report pensions growth
Thousands of pension scheme members could face large tax bills for failing to report pensions growth on their tax returns.
HMRC said today it was aware some individuals have not reported exceeding the annual allowance for pensions contributions, which currently stands at £40,000.
“This admission means that potentially thousands of people may have failed to declare large pension inputs on their tax return and could face a large bill when HMRC finally catches up with them,” said former pensions minister and Royal London policy director Sir Steve Webb.
In a pensions newsletter published today, HMRC called on pension scheme operators to remind members who have breached the limit to declare this on their self-assessment tax return.
As well as cash paid into defined contribution pension pots, this would include growth in savers’ defined pension rights.
Individuals who fail to declare the charges risk “huge” tax bills, Webb warned, as any pension input above the £40,000 allowance is charged at their income tax rate – which could be 40 or 45 per cent.
“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,” said Webb.
Webb said filling in the tax return allowance “requires individuals to understand the system”.
Those who fall under the tapered annual allowance for pension contributions and have an allowance of between £10,000 and £40,000, their scheme may not be aware of this and may fail to notify them, Webb said.
This could lead to individuals entering “zero” on their tax return instead of the correct amount, and then being hit with a substantial tax bill.
Under the tapered pension allowance, every £2 of adjusted income over £150,000, an individual’s annual allowance is reduced by £1.
“HMRC needs to get to the bottom of how many people have failed to declare this information and contact them immediately,” he said. “And the next government needs to radically simplify the tax relief limits, to avoid this sort of situation happening again.”
— Thousands could face ‘huge’ tax bills for failing to report pensions growth to www.cityam.com