Higher-rate taxpayers who save into personal pensions and fail to claim extra tax relief could soon have it handed to them automatically under a new proposal.

Under the current scheme, individuals pay into their personal pension from net income, with their pension provider claiming basic-rate relief on total contributions.

Those paying higher or additional-rate Income Tax can receive extra tax relief, but have to claim this through their tax return.

The Office for Tax Simplification (OTS) is consulting on whether third-party information, such as from pension providers, could be directly sent to HMRC and inserted into tax returns.

For those who fail to claim additional tax relief that’s due to them on personal pension contributions, this information could automatically be reclaimed and reported to HMRC.

However, this may not prove popular in all quarters; such a system could cause the government’s tax relief bill to soar at a time when the UK’s national debt, expressed as a percentage of GDP, reached its highest levels since the early 1960s.

Steve Webb, the former pensions minister, said:

“Many people who put money into a personal pension fail to claim the higher-rate tax relief to which they are entitled. 

“Making this happen automatically via data sharing between the pension provider and HMRC would streamline this process. 

“But what is good for the saver may be regarded as bad news by the Treasury, who would fear the cost of tax relief could soar.”

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