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    • amc1
    • By amc1 14th Jul 17, 9:38 AM
    • 1,298Posts
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    amc1
    Redundancy & pension payment
    • #1
    • 14th Jul 17, 9:38 AM
    Redundancy & pension payment 14th Jul 17 at 9:38 AM
    Hi, in March (tax year 16/17) I was made redundant and received a taxable £115k payment in my final pay packet (actually received £145k but the first £30k is not taxable). Via PAYE I have paid 40% tax on this figure.

    After advice from my company, my pension provider and speaking to the tax office twice about my plans - In April (tax year 17/18) I used some of my own savings to add to the redundancy figure and paid £115k (I checked this was a permitted amount) into my pension pot.

    I then wrote a letter to the tax office to request a rebate of the 40% tax paid on the original £115k. This equates to a refund of £46k.

    After a wait of eight weeks I have now received a letter asking me to complete a self-assessment as my earnings for 16/17 were over £100k. I wasn't aware of this requirement and am a bit miffed that I had not been advised about it before but ok I can do this.

    But I am now worried about the overall outcome of this. I don't want to end up in the position of having already paid tax and then paying it again when I take it out of the pension.

    Am I needlessly worrying or have I done something wrong / been advised incorrectly ?

    Thank you.
Page 1
    • Spreadsheetman
    • By Spreadsheetman 14th Jul 17, 9:58 AM
    • 40 Posts
    • 33 Thanks
    Spreadsheetman
    • #2
    • 14th Jul 17, 9:58 AM
    • #2
    • 14th Jul 17, 9:58 AM
    Were you using carry-forward pension allowance from the previous 3 years to allow the £115k contribution?
    • amc1
    • By amc1 14th Jul 17, 9:59 AM
    • 1,298 Posts
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    amc1
    • #3
    • 14th Jul 17, 9:59 AM
    • #3
    • 14th Jul 17, 9:59 AM
    yes, confirmed with the pension provider.
    • Dazed and confused
    • By Dazed and confused 14th Jul 17, 10:21 AM
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    Dazed and confused
    • #4
    • 14th Jul 17, 10:21 AM
    • #4
    • 14th Jul 17, 10:21 AM
    Are you sure you've thought this through?

    Obviously we can only go off what you have actually posted but it appears that you have confused your tax years.

    2016:17 - income exceeds £100,000

    2017:18 - pension payment exceeds £100,000

    Tax relief for pension payments cannot be carried back so how does the payment you made in 2017:18 affect your tax liability for 2016:17?

    If your next post is to tell us your original post was wrong then is it any wonder you've possibly gone wrong because people can only go off what you post, we're not mind readers .

    Your employer (probably) and HMRC (definitely) don't give financial advice so who did you give you advice and did you give them all the pertinent facts?

    You do not have to pay tax on your pension when you withdraw it. This can be avoided by only withdrawing an amount upto your personal tax allowance each year (and having no other taxable income). Once you reach state pension age this limits how much you can withdraw without having to pay tax on it as you will likely have £8k+ of state pension income.
    Last edited by Dazed and confused; 14-07-2017 at 10:26 AM.
    • Spreadsheetman
    • By Spreadsheetman 14th Jul 17, 10:35 AM
    • 40 Posts
    • 33 Thanks
    Spreadsheetman
    • #5
    • 14th Jul 17, 10:35 AM
    • #5
    • 14th Jul 17, 10:35 AM
    Are you sure you've thought this through?

    Obviously we can only go off what you have actually posted but it appears that you have confused your tax years.
    ....
    Originally posted by Dazed and confused
    Oh yes - good spot. That would be very bad if that were the case so the timing of that large pension payment is very important - 5th April and before = good, 6th April and after = bad!
    • amc1
    • By amc1 14th Jul 17, 10:38 AM
    • 1,298 Posts
    • 235 Thanks
    amc1
    • #6
    • 14th Jul 17, 10:38 AM
    • #6
    • 14th Jul 17, 10:38 AM
    Thanks. My original post was not wrong. And what you have said has confirmed my fears.

    I discussed my plans including timescales with work, the pension provider and the tax office twice and not one of them raised this potential issue.

    I'm gutted. Are there any options left open to me ?
    • Linton
    • By Linton 14th Jul 17, 10:47 AM
    • 8,068 Posts
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    Linton
    • #7
    • 14th Jul 17, 10:47 AM
    • #7
    • 14th Jul 17, 10:47 AM
    The best you can do is to get tax relief on all of this year's income.
    • amc1
    • By amc1 14th Jul 17, 10:50 AM
    • 1,298 Posts
    • 235 Thanks
    amc1
    • #8
    • 14th Jul 17, 10:50 AM
    • #8
    • 14th Jul 17, 10:50 AM
    I am now in receipt of another pension which gives me approx £22k a year. Are you saying I should be able to reclaim the £4.4k tax that I will pay this year...
    • Dazed and confused
    • By Dazed and confused 14th Jul 17, 11:06 AM
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    Dazed and confused
    • #9
    • 14th Jul 17, 11:06 AM
    • #9
    • 14th Jul 17, 11:06 AM
    Sadly no.

    Payments into a SIPP or personal pension should attract basic rate relief at source i.e. the £115k you paid becomes £143k in your pension fund but the only impact this has on your own personal tax position is if you are a higher rate payer. The gross pension amount increases the amount you can pay 20% tax on but if your only income this year is £22k then you won't pay any higher rate tax so there is nothing to come back from HMRC.

    Glass half full (1)
    the basic rate relief of nearly £30k is better than getting a refund of any PAYE tax you will pay this year.

    Glass half full (2)
    On £22k you will only pay £2100 tax not £4400

    Glass half empty (1)
    If you are still getting the £22k pension when you withdraw money from the £115/143k pension pot you will be paying 20% tax on it (or more if large enough amounts are taken out)

    Glass half empty (2)
    As the £115k payment was made late in the year it is likely HMRC would be unaware your income was going to exceed £100,000 so you will probably fund that when you complete your self assessment tax return that you owe quite a lot of tax for 2016:17. This is because your tax code will have included your personal allowance but if you had income of £122,000 or more in total last year you will lose it all. This will cost you approx £4,400 (£11,000 x 40%).

    Glimmer of hope
    What date was the £145k (£115k taxable) actually paid?
    Last edited by Dazed and confused; 14-07-2017 at 11:11 AM.
    • Linton
    • By Linton 14th Jul 17, 11:21 AM
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    Linton
    I dont think the OP will get basic relief at source on the £115K or perhaps more likely any given will be rescinded at the end of the tax year - pension payments above the limits dont qualify for tax relief. It wont affect the tax on the £22K pension as that isnt earned income.
    Last edited by Linton; 14-07-2017 at 11:23 AM.
    • amc1
    • By amc1 14th Jul 17, 11:22 AM
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    amc1
    My pension provider (which is actually a money purchase occupational scheme which replaced the FS scheme I was in) said they didn't do tax relief at source and only invested the £115,000 they received from me. The £115k was paid to them on 25th April 2017.
    • amc1
    • By amc1 14th Jul 17, 11:24 AM
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    amc1
    The reason for the delay was that when I received £115k in my pay packet, it had been taxed so I needed to find the money from elsewhere to maximise my payment into my pension - if that makes sense.
    • Dazed and confused
    • By Dazed and confused 14th Jul 17, 11:29 AM
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    Dazed and confused
    Seems somewhat more complicated the more we learn!

    If you only have pension income and no earnings this year then I'm not sure you can get any tax relief on the payment.

    There are one or two more knowledgeable than me in the pension tax relief department who will hopefully come along and help
    • xylophone
    • By xylophone 14th Jul 17, 11:31 AM
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    xylophone
    but if your only income this year is £22k then you won't pay any higher rate tax so there is nothing to come back from HMRC.
    The £22,000 mentioned by the OP appears to be pension income for 2017.

    Pension income is not "relevant earnings" for purposes of pension tax relief.

    http://www.pruadviser.co.uk/content/knowledge/technical-centre/tax_relief_members_contributions/
    • Linton
    • By Linton 14th Jul 17, 11:38 AM
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    Linton
    So sadly it looks like you wont get any tax relief whatsoever from the £115K payment into your pension but will be charged a second bite of tax when you withdraw it beyond your tax allowance. Any chance of the pension scheme undoing the payment? That would be better than where you are now.
    • xylophone
    • By xylophone 14th Jul 17, 12:01 PM
    • 22,348 Posts
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    xylophone
    The basic point seems to be that the OP needed to make the pension payment/use carry forward in the tax year 2016-17?

    http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/member-contributions-tax-relief-and-annual-allowance/
    • amc1
    • By amc1 14th Jul 17, 12:26 PM
    • 1,298 Posts
    • 235 Thanks
    amc1
    Yes. So if you are made redundant at the end of the financial year, then unless you move extremely quickly, the pension option is not really available to you.
    • squirrelpie
    • By squirrelpie 14th Jul 17, 11:22 PM
    • 10 Posts
    • 2 Thanks
    squirrelpie
    "After advice from my company, my pension provider ..." Was any of this advice in writing and if so what exactly did they say?
    • bigadaj
    • By bigadaj 15th Jul 17, 6:25 AM
    • 9,577 Posts
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    bigadaj
    The OP will have paid an effective rate of 60% on the portion abive £100k as well.
    • atush
    • By atush 15th Jul 17, 9:55 AM
    • 16,155 Posts
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    atush
    It seems a shame you waited to find extra money, when you could have slammed as much as you had into the pension by April 5th.

    I have done it once by DC online on the 5th itself.
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