HMRC publish helpful information surrounding who pays the pensions annual allowance tax charge

21 October 2019

Pensions are currently a hot topic of conversation, particularly as the Queen cited the implementation of a new Pensions Bill in the speech she delivered last week. HMRC has published some interesting and useful advice surrounding where the liability lies for paying the tax charge where the pensions annual allowance is exceeded.

The annual allowance is currently capped at £40,000 per tax year. Any contributions that surpass this figure will receive no tax relief and will attract an annual allowance charge. The allowance is spread across all of an individual’s pension pots and there isn’t a £40,000 allocation for each separate pension pot a person holds. The annual allowance can fluctuate based on individual circumstances so it may be lower if someone is classed as a high earner or if they have a pension that they have previously accessed.  Similarly, in circumstances where the allowance is exceeded, there may be an opportunity to bring forward any unused allowance amounts from the previous three years.

HMRC specifies that the pensions allowance tax charge must be stated on a Self-Assessment tax return to be completed by the affected party. This is irrespective of who pays the charge.

In certain scenarios, the pension scheme may pay the tax charge on the individual’s behalf. This can be requested by the person affected by the tax charge, and they can ask the pension scheme to pay some or even, all of the charge. This may be requested if:

  • The pension savings within the scheme are higher than the annual allowance for that tax year
  • The tax charge is more than £2,000 for that tax year
  • The individual tells the pension scheme prior to the deadline of 31 July of the year after the following tax year

If the tax charge is below £2,000 and the pension scheme makes the decision that they will not pay the tax charge (which they are legally entitled to do), then the individual will be required to pay it. This is true even if the scheme initially agreed to paying the charge and then did not release payment. The individual would then be required to make the payment. Any late payments could potentially be subject to interest charges. Similarly, if the scheme makes partial payment in relation to the tax charge, the individual will be responsible for settling the outstanding amount.

Should the pension scheme make full or part payment in relation to the tax charge, the individual’s benefits will need to be reduced accordingly. It is the individual’s responsibility to check that this has been actioned or they will be liable for an unauthorised payment charge.

The article also indicates what information is required from individuals who are asking for their pension scheme to pay the tax charge and provides detail around completing the Self-Assessment tax return.



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