Frank O'Donnell

If you or members of your family have overpaid tax, you have only a few days to go before the rules for making a reclaim change.

Millions of pounds of overpaid tax remain unclaimed each year – particularly amongst the elderly.

Elderly people often pay too much tax because basic rate tax is deducted at source from savings. In many cases their income is only just over the personal allowance threshold so too much tax is deducted and they need to reclaim.

Anyone who may have overpaid tax for the tax year 2004-05 has until 21^st March to make a reclaim for that year and you must make a claim for the 2005-06 year by 5^th April 2010

Just over 8.5 million taxpayers, most of them pensioners, have money in bank and building society savings account and total income of under £10,000 a year.  Many of these individuals have only a small liability to tax.  But because they do have a liability, they are not entitled to receive the interest from their savings account gross – they have to make a tax reclaim.

A recent National Audit Office report said that an estimated 3.2 million older people do not claim the additional age-related personal tax allowances, because the rules applying to the allowance are difficult to understand.

The vast majority of pensioners reaching 65 are entitled to the full age related allowance because their income falls well below the age allowance ‘clawback’ threshold which starts at £22,900 a year (2009-10).  

Others who may have overpaid tax include anyone who for whatever reason has been put on an emergency tax code with their employer, those who files for self-assessment which includes the self employed, taxpayers with investment income and people with complex tax affairs who may have more than one source of income.  You can make a claim for a rebate of both income tax and capital gains tax if you think you have overpaid.

And there are reckoned to be around 250,000 higher rate taxpayers who are owed tax rebates on pension contributions.  Those most likely to have overpaid tax are employees in company group personal pension schemes.  They only get basic rate tax relief at source and have to claim back a further 20% if they are higher rate taxpayers. 

Where earnings are entirely from employment many won’t fill in a self-assessment tax return and may not know that they have to claim the extra 20% tax relief. To obtain the extra 20% relief you either need to complete a self-assessment return or ask the local tax office to change your tax coding.