Complex taper catches out high earners
High earners could face large tax bills if they fail to declare pension contributions on their 2018/19 tax returns, according to a report.
When completing self-assessment, taxpayers are asked if they have put money into a pension scheme above the annual pensions allowance.
For most people, this allowance is £40,000 - but for every £2 of income above £150,000, a high earner's allowance is reduced by £1.
The maximum reduction is £30,000, so individuals who earned more than £210,000 in 2018/19 will have an annual pension allowance of £10,000.
Any pension contributions above the annual pensions allowance are charged at the individual's marginal rate, usually 40% or 45%.
Royal London said complexities surrounding the tapered annual allowance result in some taxpayers being unable to answer this question.
Steve Webb, director of policy at Royal London, said:
"HMRC admits that they know that people are forgetting to put information about their pension tax bills on their annual return.
"But 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."
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