Pension lump sum contribution tax query

smmjh11

Hi


I have paid in a lump sum contribution of £20000 to my avc fund. I normally pay a couple of hundred a month out of my pay into the avc which I get the tax relief straight away.


But with the lump sum payment I received a tax certificate that I need to send to HMRC to claim the tax relief. I have done this and they have asked for my P60.


Should I get £4400 back as the 20% tax relief. I have tried phoning HMRC but the person I spoke too was clueless. I also contracted my companies pension administrator who said they could not give tax advice. Am I missing something here because if I had used all of my pay each month to put into my AVC I would of had the relief added straight away. I know I have not gone over my annual allowance and that this £22000 lump sum payment is below my gross pay for the tax year.


Hopefully someone on here has gone through a similar experience.


Many thanks

xylophone

https://forums.moneysavingexpert.com/discussion/5273071

https://www.churchofengland.org/media/1345775/avc%20factsheet%20-%20cwpf%20%20capf%20dbs.pdf

http://www.hmrc.gov.uk/tools/pension-allowance/

Dazed_and_confused

You are highly unlikely to get a refund of exactly £4400.

The amount due will all depend on your income for the year you made the payment in, which you haven't mentioned. You could really get anything from £0 to £9000+ depending on what you've earned and how much tax you've already paid.

Was the payment made in 2016:17?

What does your P60 show, or if not available, your final payslip for the year. Taxable pay, tax paid and tax code are needed. If tax code isn't 1100L then do you know how your code has been made up?

smmjh11

Hi Dazed


I put the lump sum payment in the 2016/2017 tax year.


My P60 shows just over £22049 for the year, my code is 1114L and my tax paid is £2180.


I put the £22000 in as I assumed that I would get full tax relief , obviously I have misread the information I was looking at.


Thanks for the links. I wish I had seen this information before I paid in the lump sum as I put the £22000 expecting tax relief on all of it.

Dazed_and_confused

It seems you have been a bit hasty. You cannot get a tax refund of £4400 if you've only paid £2180 tax.

So unless you have other taxed income such as part time job or bank reward such as halifax current account then you are only going to get £2180.

Had you contributed £11000 last year and £11000 now you would have got close to £4400 (assuming salary is similar this year).

Essentially you have made your tax free personal allowance worthless for 2016:17.

smmjh11

I thought the government just added 20% to the pension this is where I went wrong. I was only putting the money in as I am taking my pension soon. I have a few weeks left before I leave so have time to add some avc contributions before I go. I will make sure my lump sum contribution matches my tax for the current year.


Thanks for your assistance in clearing up my mis understanding.


All the best


smmjh11

Dazed_and_confused

Small consolation but hopefully you'll appreciate the extra pension you've bought for many year to come!

Dansmam

I have been thinking about doing something similar because I understood you could 'go back' and make contributions for the last three years. From the answers above I'm now wondering if that's right, or is it that you can put the contributions in but not get tax relief? Or do you have to be specific with hmrc about how much is going in for each year? Or something else? I am new to this pensions malarkey and it all seems unnecessarily obscure so I have every sympathy with the OP ☹️

Dazed_and_confused

You cannot "go back". In certain situations you can make use of earlier years unused contribution limits but the payments are still made in the current tax year for tax relief purposes.

In the op's case the tax relief element is open to interpretation and I don't think there is a correct answer. You could argue that he had received tax relief on the full amount it's just that that amount of tax refund is limited to the amount of tax he has paid. Others would say he is only due tax relief on about £11k.

Op's method of pension contribution is, judging by the posts on this board, fairly unusual.

Most pension contributions are done through sipp type arrangements where full basic rate tax relief is given automatically through the sipp provider.

What exactly are you planning on doing i.e. what type of scheme are you going to pay into, how much income do you expect to have this year etc as this can have a huge affect on the amount of tax relief due.

Dansmam

I would be putting a lump sum into an avc in addition to monthly avc contributions of £1.5k gross 1k net (can do this as mortgage now paid off and I'm trying to pile in all I can to retire in the next few years) makes no sense to keep it in an isa meanwhile. Also paying into LGPS. If I can't get tax relief beyond current year I'd want to put in enough to offset 40% tax. Salary is now 65k so I think there's still scope there but presumably I'd need to check LGPS contributions to work out how much?
Apologies OP I don't want to hijack your thread, last question, promise 😐

Dazed_and_confused

You'd need to consider your total taxable income not just salary to establish the amount you'd have to pay to get the maximum 40% relief.

There are other threads on here which delve into bringing forward unused contribution limits so you can make bigger payments this year but it seems complicated particularly when in a company scheme as your normal contributions affect the extra amount you can contribute.

If you just want to get down to no 40% tax though you're looking at large but not huge amounts, assuming salary makes up most of your income.

The normal basic rate limit is £45k or £43k in Scotland but there are often misunderstandings about income here, is £65k what you earn (irrelevant) or your taxable pay after LGPS contribution?

Presumably your AVC payments are already increasing the amount you can pay at basic rate so if you have minimal other income you could well be nearly out of 40% tax just from the AVC (bit confused by the 1.5k gross becomes 1k net??)