MPAA advice please.

triguy58

I have received a letter from my pension company stating I have exceeded my MPAA allowance, which I believe now is just £4000. I paid £ 6800 into my pension last year so; how much tax am I liable to? How is it paid? Thanks in advance.

Sibbers123

You will be subject to an annual allowance charge.

You say you contributed £6,800, if that is net of basic rate tax, you actually contributed £8,500.

The annual allowance charge will therefore be £4,500. This is taxed as your top slice of income so if you're a basic rate taxpayer this will be tax of £4,500 x 20% = £900.

You cannot carry forward any unused MPAA unfortunately.

You will notify HMRC of this via your self-assessment tax return. For more help see HS345 Pension savings.

You're not losing out, HMRC are just trying to recover some of the initial tax relief you obtained.

triguy58

Is it taken out of my pension or do I have to make a payment?

Tammer

Hi,

Would it be possible to get a little more information on the background? Were you aware that you were subject to the MPAA and do you know why this is?

T

triguy58

Hi, I took a small pension in 2015 and was aware at that time the MPAA was £10000. I was unaware of this being reduced to £4000 until I received notice from Scottish widows.

EdSwippet

triguy58 wrote: »

Is it taken out of my pension or do I have to make a payment?

There is a 'scheme pays' framework for pension contributions above the annual allowance. However, it is compulsory for pension schemes only where the standard £40k/year allowance is exceeded and the tax due exceeds £2k. Otherwise, a pension scheme may voluntarily offer it, or they may not.

It is better if you can for the scheme to pay your tax here, rather than for you to pay it out of other funds. Unless the scheme pays, you run the risk of double-tax, because this money may be taxed a second time when you withdraw it from the pension.

kidmugsy

triguy58 wrote: »

Hi, I took a small pension in 2015 and was aware at that time the MPAA was £10000. I was unaware of this being reduced to £4000 until I received notice from Scottish widows.

I sympathise: the frequency of messing about with pensions law is dismaying.

dunstonh

triguy58 wrote: »

Hi, I took a small pension in 2015 and was aware at that time the MPAA was £10000. I was unaware of this being reduced to £4000 until I received notice from Scottish widows.

If you took the "small" pension under small pots rules then the MPAA does not apply. if you took it under UFPLS, then MPAA applies.

When you made the contribution to SW in 2015 they should have asked on your application form whether you are subject to MPAA. You are also required under Pension rules to inform the pension provider you are subject to MPAA before you make any contribution.