You could be owed money without even realising.
Here are four examples where you may be missing out:
1. 40% taxpayers could be missing out on tax refunds
One of the big benefits of contributing to a pension is tax relief. For every £80 you pay in, the Government add another £20. If you pay 40% tax you can claim back up to another £20, with 45% taxpayers able to claim back up to an extra £25.
While higher-rate taxpayers contributing to occupational pension schemes normally get the extra tax relief through their payroll, the self-employed and those contributing to Self-Invested and other personal pensions need to let Her Majesty’s Revenue and Customs (HMRC) know, either via their annual tax return or by informing them directly.
Higher-rate taxpayers who don’t let HMRC know about their pension contributions could be missing out on tax rebates worth thousands of pounds.
Take, for example, a self-employed person who earns £60,000 and pays £8,000 into their pension. The Government will add another £2,000 direct into their plan. If they don’t let HMRC know about this pension contribution, they will miss out on the extra £2,000 tax relief they are entitled to.
If you haven’t been claiming the extra tax relief you can go back up to four years and make a reclaim. The time limits differ depending on whether you’re required to submit a tax return or not.
2. Basic-rate taxpayers – is your spouse a non-taxpayer?
In the current tax year, most people can receive income of up to £11,500 before they pay tax. If your income is below this figure, you can transfer up to £1,150 of this tax-free allowance to your spouse or civil partner, provided they have an income below £45,000 (or £43,000 in Scotland). This will mean they save £230 in tax (£1,150 x 20%).
The marriage allowance was first introduced in April 2015 and claims can be backdated to this date. If you were eligible to claim in 2015/16 it was worth £212, and in 2016/17 it was worth £220. By backdating, you may be able to reclaim up to £662.
You can apply on line at gov.uk/apply-marriage-allowance or call 0300 200 3300.
3. Have you taken money out of your pension and paid too much tax?
Many people have taken advantage of the pension freedoms, introduced in 2015, which allow the over 55s to take some or all of their pension fund as a lump sum. Where withdrawals are made over any allowable tax-free amount, the excess is added to your income in that year and becomes taxable.
If your pension provider doesn’t have an up-to-date tax code for you, they will tax the lump sum using an emergency tax code which can lead to much of the lump sum being taxed at 40% or in some circumstances 45%.
Any overpaid tax can be reclaimed via your tax return at the end of the tax year. Alternatively, you can reclaim during the tax year using the appropriate HMRC form.
4. Inheritance Tax: Have assets dropped in value between probate and sale?
Nobody wants to pay more tax than they have to, but it’s not uncommon for a drop in share or property prices after an Inheritance Tax (IHT) bill has been paid to leave the beneficiaries of a will feeling short-changed. Fortunately, there’s a straightforward process to reclaim any overpaid tax.
IHT is calculated on the value of assets at the time of death and is normally payable within six months. If the executor sells any ‘qualifying investments’ including listed shares, unit trusts or OEIC’s within 12 months of death and the value has fallen, it is possible to substitute the sale price for the value at the date death, and reclaim the excess IHT paid on the higher value.
All qualifying investments sold by the executor in the 12 months following death have to be included in the claim, not just those that have fallen in value. This means that any gains made since the death will reduce the amount of IHT that can be reclaimed.
The sale of the ‘qualifying investment’ and the claim can only be made by the ‘appropriate person’ who is the person liable for the tax, this will normally be the executor of the will. The tax can be reclaimed using HMRC form IHT35.
A similar relief is available for estates containing property, where the value falls after the date of death and the property is sold by the executor within four years of death.
YOU NEED TO KNOW
- The value of pensions can fall and you may get back less than you invested.
- The tax treatment of pensions depends on your circumstances and may change in the future.
- To claim 40% tax relief on your full pension contribution you must have sufficient earnings in the 40% tax band.
GET IN TOUCH
If you would like more information speak to your local NFU Mutual Agent or phone 0800 056 0142 (select option 3) and we will put you in touch with your personal Financial Adviser.
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