Purchased Annuity and Tax return

kilrail

I have a purchased annuity from Aviva which is paid with no tax deducted. I originally received a statement saying the payments would have 20% tax deducted but only from the interest part of £88.30 giving a net payment of £212.89 per month.

However, every payment has been the gross figure of £230.55 and I have phoned a couple of times to be told that it's between me and the HMRC.

So, no problem but if I enter the gross income in pensions and annuities I will be taxed accordingly so I assume I should only enter the interest part but doing my tax return online I couldn't see anywhere to enter it. I have a suspicion it might be under other interest or something and even as I am typing this I am thinking I have missed something so will retrieve the return and investigate.

If anyone has the answer to hand I would appreciate your comments as this will be a perpetual problem. As I retired early at the end of last year and had some taxable benefits, and my income isn't high enough to collect the tax through PAYE, I am having to help the Revenue by sending a large (for me anything over £1,000 is large) payment so I don't want them to get any more than they should!!

jamesd

It's between you and HMRC.

HMRC would normally send the pension company a notice of coding and the annuity would be paid via PAYE. But your description makes me wonder if you have a standard lifetime pension annuity and this paragraph applies only to that type.

What type of annuity this is? Is it a Purchased Life Annuity? Or a normal lifetime annuity purchased with money inside a pension pot (not the lump sum)? The tax treatment of a Purchased Life Annuity is a bit different from normal lifetime annuities and that may be why it's being handled differently. I'm not sufficiently familiar with the details of how those are administered to know if what you're seeing for a PLA, if this is a PLA, is normal.

kilrail

Sorry, I might not have made it clear that this is a purchased life annuity sometimes referred to as an immediate annuity purchased with my own money and nothing to do with pensions as such. The problem is that the word annuity is normally associated with pensions and so the confusion regarding tax returns.

I just need to know wher in the tax return I should enter this and what figures I should disclose.

jamesd

Thanks, thought it was probably a purchased life annuity. Try the HMRC Retirement Annuity Helpline

kilrail

I've been there already but most of the help is for people to recover tax already deducted whereas I need to pay some over. I am startng to think I need to enter the interest element only in the section -
Other UK income not included on supplementary pages.

Debt_Free_Chick

Don't include it under "pensions" or any other annuity.

It can go in box 1 on page TR3 or 16 onwards, on that page.

You need to know the taxable total paid to you in the tax year and any tax deducted. I can see that Aviva have not deducted tax, but they should still send you a statement or confirm the totals for the tax year.

Whatever you do, only enter the amount which is taxable. As you know, part of each instalment is a return of the capital you used to buy the policy and that is not, under any circumstances, taxable.

xylophone

http://www.aviva.co.uk/adviser/product-literature/files/an/an12050c.pdf

We offer an Immediate Life Annuity (often known as a
purchased life annuity) which is different to our other
annuities. This is because you can buy it with money
from other sources, such as savings you have in the
bank, money from an investment, inherited money or
the tax-free cash from your pension fund.
This type of annuity is normally bought by people who
want to maximise their income in retirement. There may
be tax advantages to buying an Immediate Life Annuity
because HM Revenue & Customs may agree that part of
your payment is a return of capital and not subject to tax
annuity options.

Have HMRC agreed? Might it be as well to ring up and check if you don't know?

Presumably if they have agreed, the interest should be included under "interest received without tax deducted"?

Debt_Free_Chick

I think Aviva are being over-cautious in that statement. There is no need to get a specific exemption as that exists under the tax legislation.

"For recipients liable to income tax, the legislation on purchased life annuities is in Chapter 7 of Part 4 (charge to tax) and Chapter 7 of Part 6 (partial exemption scheme) of ITTOIA05. The legislation prescribes the amount of each annuity payment that is treated as exempt from the charge to income tax, following a claim for that purpose.

Tax is charged on the amount of annuity payments arising in the tax year, subject to the special rules on foreign income, see SAIM1130 onwards. It is charged on the person receiving or entitled to the payments, who is given credit for any tax deducted by the payer.
No tax is, however, charged under the scheme on the exempt capital amount computed as described in IPTM4320 and IPTM4330. "

See here http://www.hmrc.gov.uk/manuals/iptm/IPTM4300.htm

jamesd

kilrail wrote: »

I've been there already but most of the help is for people to recover tax already deducted whereas I need to pay some over

You mean that you phoned the helpline and they couldn't tell you the answer?

kilrail

The helpline - don't make me laugh. I spent 28 minutes (most on hold) while the guy on the end of the phone didn't even seem to know what a purchased life annuity actually was. I ended up telling him what I was going to do which is enter the taxable amount of the income under "Other UK income" and describe exactly how it is arrived at with policy number etc.
I then telephone an Accountant friend who agreed that entering it there would be fine.

I also phoned Aviva (who promised to phone me back and didn't ) and told them that I believed their tax certificate under schedule D was wrong, or so I believed. They stated on the cert that the figures I should enter in my tax return were the gross payment (inc the capital part) and zero for tax deducted. I said I could agree the zero tax but if I entered the gross amount HMRC would tax me on it. They are allegedly investigating.

xylophone

http://www.buymyannuity.co.uk/pdf/purchasedlifeannuities.pdf
http://www.hmrc.gov.uk/forms/pla6.pdf
http://www.hmrc.gov.uk/manuals/iptm/iptm4350.htm

I wonder is anything in the above relevant to your policy?
The way that Aviva is administering it doesn't seem to be quite standard?