HMRC warning for savers failing to report pensions growth

HMRC has issued a warning that higher earners are failing to report pensions growth on their tax returns, meaning taxpayers could face huge bills for undeclared pension contributions, according to Royal London.

HMRC confirmed in its monthly Pension Schemes Newsletter they ‘know that scheme members are forgetting to declare details of their annual allowance charge on their Self-Assessment returns.’

Royal London, the life insurance, pension and investments expert, noted that when completing annual tax returns, taxpayers are asked if they have put money into a pension above the ‘annual allowance’ – currently £40,000 per year for most people, but as little as £10,000 for those affected by the ‘tapered annual allowance.’

Royal London suggested there has long been a suspicion that individuals who do not understand the system have been leaving a blank in answer to this question, and that HMRC are now asking pension schemes to remind members of their duty to put this information on their tax return.

Royal London director of policy, Steve Webb, commented: “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.”

This admission, Royal London, added, 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 catches up with them.’

Furthermore, the pension expert said any pension input above the annual allowance is charged at an individual’s marginal income tax rate – which could be 40% or 45%.

Webb continued: “Filling in this tax return question requires individuals to understand the system, especially if they are affected by the tapered annual allowance. Thousands of people could be set to face huge tax bills because they have innocently failed to declare this information on their tax return.

“HMRC needs to get to the bottom of how many people have failed to declare this information and contact them immediately. The next government needs to radically simplify the tax relief limits, to avoid this sort of situation happening again.”

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