If you are within the higher-rate tax bracket, you may be missing out on additional tax relief by not submitting a Self Assessment return.
If you earn more than £100,000, it's really important to do your Self Assessment tax return correctly. This isn't just about following rules; it's also about making sure you get financial benefits, especially when it comes to your pension. Read on to see how you can also get your relief.
Why Do Self Assessment?
When your income is over £100,000, the law says you must complete a Self Assessment tax return - if you don't, you could face fines. It's the first step to handling your taxes properly and knowing what you can claim back.
One benefit of completing a Self Assessment return is that you can get more money back on your pension contributions. Normally, your pension scheme claims a basic 20% tax relief for you, but if you pay a higher tax rate, you can claim an extra 20% back on your pension.
This additional 20% is accessed through your Self Assessment and it's a great way to increase your pension pot. Additionally, completing your Self Assessment correctly means you pay the right amount of tax and plan better for your future financial needs.
Making the Most of Your Pension
If you are a high earner, adding to your pension is a smart move. By doing your Self Assessment, you can claim the full tax relief you're owed. But remember, there's a limit to how much you can put in your pension each year without getting taxed. It's important to keep track of how much you're putting in.
How Tax Relief Works on Pension Contributions
Basic Rate Tax Relief: For every pension contribution, the government automatically adds tax relief at the basic rate of 20%. So, for every £80 you contribute to your pension, the government adds £20, making a total contribution of £100.
Higher Rate Tax Relief: If you are a higher-rate taxpayer (paying a 40% tax rate), you can claim additional tax relief on your pension contributions. This additional relief is not automatically added to your pension like the basic-rate relief.
Filling in your Self Assessment right and on time is key, especially if you earn over £100,000. It helps you use all the benefits you can get, like saving more in your pension. If this is new to you, or if you want to get better at it, it's a good idea to ask a tax expert for advice or look at the HMRC website for the latest info.