tax treatment of redundancy payment in different tax years due to grievance issue

Debt_Free_Chick

cepheus wrote: »

Perhaps I may ask the IR to compromise and allow me to backdate it in a private pension for the same financial year?

You would avoid all tax issues completely, if your employer agreed to pay the additional amount in to a pension directly - provided your total income is less than £130k and has been in the previous two tax years as well. Include any taxable redundancy payment already received when you look at your total income, but deduct your own pension contributions and charity donations.

cepheus

I don't think that income limit applies to financial year 08/09 when this would be relevent. I know there are some backdating restrictions for this tax year when the 130k rule comes into force for the next tax year.

This is a long running saga and the company refused to let me use their pension scheme for the redundancy, so I had to open a private one myself already, and would have to add it to that.

Debt_Free_Chick

cepheus wrote: »

I don't think that income limit applies to financial year 08/09 when this would be relevent. I know there are some backdating restrictions for this tax year when that rule comes the next tax year.

It's the anti-forestalling regulations see point 9, so if your income was more than £130k in 2008/09 and you pay an extra pension contribution in 2010/11, the new tax charge will apply.

This is a long running saga and the company refused to let me use their pension scheme for the redundancy, so I had to open a private one myself.

Strange decision, but we are where we are, I guess. The new tax charge, if you are caught by it, will apply to all payments to any registered pension scheme, though.

cepheus

I think the tax year which applies to the redundancy in my case is the one ending April 5th 2009 (08/09) so hopefully this will not be relevent?

Perhaps I should make it clear my income has been relatively small before and since that tax year, it was only high on 08/09 due to the salary+redundancy in that year which both count as income!

From your link

Who is likely to be affected? [FONT=Arial,Arial]
1. Individuals with incomes of £130,000 or over who, on or after 9 December 2009
[/FONT]

Debt_Free_Chick

cepheus wrote: »

I think the tax year which applies to the redundancy in my case is the one ending April 5th 2009 (08/09) so hopefully this will not be relevent?

Perhaps I should make it clear my income has been relatively small before and since that tax year, it was only high on 08/09 due to the salary+redundancy in that year which both count as income!

From your link

The regs are certainly very complex! My understanding (as a pensions manager in a company with over 100 "high earners") is ..... if your total income (as defined) has exceeded £130k in either 2007/08, 2008/09 or 2009/2010; and you pay an extra pension contribution, outside of your "normal pattern" (as defined) after 22 April 2009, then you are probably caught by the anti-forestalling regulations. The reference to 9 December is to the payment of extra pension contributions.

HMRC's guidance note is here and confirms the "look back" test, which applies to the previous two tax years as well.

It's very complex, but if your income has been over £130k, then you should not count on getting full tax relief on any new pension contribution you make now.

Debt_Free_Chick

cepheus wrote: »

I think the tax year which applies to the redundancy in my case is the one ending April 5th 2009 (08/09) so hopefully this will not be relevent?

Perhaps I should make it clear my income has been relatively small before and since that tax year, it was only high on 08/09 due to the salary+redundancy in that year which both count as income!

From your link

Who is likely to be affected? [FONT=Arial,Arial]
1. Individuals with incomes of £130,000 or over who, on or after 9 December 2009
[/FONT]

Oh, I see what you mean .... but you should be reading point 9

"From 9 December 2009, the special annual allowance and tax charge will also apply to those with income of £130,000 or over, for the tax year or for either of the two preceding tax years." (Bold formatting is my emphasis).

So if your income in 08/09 was more than £130k, then you will be caught by the anti-forestalling regulations!

cepheus

"From 9 December 2009, the special annual allowance and tax charge will also apply to those with income of £130,000 or over, for the tax year or for either of the two preceding tax years." (Bold formatting is my emphasis).

I think it is the paragraph below you are referring to? So you think they mean previous two years relative to 2009 and not 2011?

There is also a ‘look back’ test. Those with relevant incomes below the threshold in the tax year will also need to check whether or not their ‘relevant income’ was also below the threshold in both the previous two tax years. If it was on or above the threshold then they will be subject to the anti-forestalling rules for the tax year.

Of course in my case the situation was beyond by control and the payment I was entitled to should have been paid prior to these rules becoming known (that is precisely the HMRCs argument!) so perhaps the HMRC would view it differently. Of course I would be more than happy for the balance (a much smaller amount) to be paid in the current tax year anyway so this clearly isn't what this rule was designed to prevent! That is there was no intention to backdate anything to avoid the 2011 deadline!

Debt_Free_Chick

cepheus wrote: »

I think it is the paragraph below you are referring to? So you think they mean previous two years relative to 2009 and not 2011?

My understanding is that it relates to the tax year in which the contribution is paid AND the two tax years immediately before, where the extra payment is made after 9 December 2009.

Of course in my case the situation was beyond by control and the payment I was entitled to should have been paid prior to these rules becoming known (that is precisely the HMRCs argument!) so perhaps the HMRC would view it differently.

I fully sympathise with your situation, but understand that there is only a concession in respect of an extra pension contribution that was contractually due before these new regs were introduced. There is no concession for voluntary/discretionary contributions and I believe you will be caught by the new rules.

Of course I would be more than happy for the balance (a much smaller amount) to be paid in the current tax year anyway so this clearly isn't what this rule was designed to prevent! That is there was no intention to backdate anything to avoid the 2011 deadline!

Unfortunately, this is precisely what the Treasury intends - that anyone making an extra contribution before 2011, will be caught by the anti-forestalling regulations, unless there was a contractual obligation made beforehand to pay that contribution.

But you really ought to get professional advice on this and the extent to which the new regulations will bite, in your case. It may be that the new tax is less than anticipated, but someone will need to work through the regulations and all your income in order to be sure.

goRt

But doesn't this still apply wrt company pension schemes:
http://www.pensionsadvisoryservice.org.uk/occupational_pensions/contributions

As you say, professional advice needs to be sought on this and I suspect that there'll be as many opinions as there are experts until such time as this new regs are tested

Debt_Free_Chick

goRt wrote: »

But doesn't this still apply wrt company pension schemes:
http://www.pensionsadvisoryservice.org.uk/occupational_pensions/contributions

Yes it does - with the "Update" half-way down that page being overlayed on to the existing rules.