Tax relief for buying NHS Additional Pension and paying lump sum

Jan_the_pensioner

After spending weeks calling NHS pensions and tax office for weeks, any advice at this site is my last hope.
 I will retire from NHS 1995 pension scheme next week after working 15 years. I bought additional pension and paid about £42,000 lump sum for £2000 a year additional pension. I am hoping to get about £9,500 a year pension.
I   sent proof of my additional pension to HMRC and requested %20 tax relief as I understand I cannot be taxed twice for the same  money. £42,000 was my savings from my taxed earnings in the last 15 years. Tax Office wrote back to me saying that because I was a basic rate tax payer I do not meet the criteria to claim tax relief on additional pension contribution. I went back to pension advisor in our NHS Trust and she told me that this was wrong and that I should submit a self assessment to tax office. I called tax office for further advice and they told me that I do not need to do self assessment form, NHS would add the amount to my pension when they start paying me. I called NHS England for confirmation and they briefly said that anything to do with tax relief, would be paid back by HMRC and not NHS. Called independent advisor linked to NHS Pension site and he advised to get an accountant to complete self assessment form. I called accounted who told me that he would charge me £300 to do this form. 

Before I take a risk and depart from my £300, I wonder if anyone here would tell me if I am on the right track to claim tax relief for the additional pension I purchased in November 2019 and paid lump sum of 42,000.

Many thanks in advance for any suggestions.

JoeCrystal

That sound complicated so I am not entirely sure what is the answer is but is it possible that the lump sum payment you made is net rather than gross?

hugheskevi

This is unfortunately a not uncommon story. If you search this forum you will see others struggling over the years with getting tax relief on lump sum contributions like the one you made.

There are usually 3 ways to basic rate tax relief on contributions - (1) Net pay arrangement (2) Relief at source (3) Reclaim from HMRC. The first two of these methods are very common, whilst reclaiming basic rate relief from HMRC is so rare that even HMRC call-centre staff commonly don't understand it is a method some types of pension contribution use.

The best solution is to contact HMRC in writing (do not call them with this sort of issue). I appreciate you have already done this, but I think you may not have set out the key details clearly enough, and so HMRC assumed you were talking about a Relief at Source scheme under which you would need to claim higher-rate relief if entitled (and as you are are a basic rate rather than higher rate taxpayer said you were not entitled to claim relief). The key points you need to make are:

• You have made a contribution of about £42,000 (be precise in your letter) into a registered pension scheme which does not provide any tax relief on contributions
  
• The pension contribution did not benefit from any tax relief under either net pay arrangement nor relief-at-source arrangements (this is self-explanatory from the point above, it is just to help HMRC understand that this is not a typical sort of contribution and using the technical terms helps with that)
  
• You are a basic rate taxpayer (I assume, based on your post above)
• Include details of all your taxable income (salary, bonus, expected pension for remainder of 2020/21 and anything else)
• Include details of your standard and lump sum pension contributions
• Include evidence of the pension contribution
  

There is no requirement to use an accountant or even to do self-assessment to reclaim the relief (although as there is a specific box on self-assessment for this type of contribution it does avoid dealing with HMRC officers and the HMRC computer will make the right calculation). Once HMRC understand your pension contribution you will receive the relief due.

Hopefully that will get it sorted, but you might need to come back to the forum with HMRC's response.

Jan_the_pensioner

JoeCrystal said:

That sound complicated so I am not entirely sure what is the answer is but is it possible that the lump sum payment you made is net rather than gross?

It was the savings from my taxed earning.

Jan_the_pensioner

hugheskevi said:

This is unfortunately a not uncommon story. If you search this forum you will see others struggling over the years with getting tax relief on lump sum contributions like the one you made.

There are usually 3 ways to basic rate tax relief on contributions - (1) Net pay arrangement (2) Relief at source (3) Reclaim from HMRC. The first two of these methods are very common, whilst reclaiming basic rate relief from HMRC is so rare that even HMRC call-centre staff commonly don't understand it is a method some types of pension contribution use.

The best solution is to contact HMRC in writing. I appreciate you have already done this, but I think you may not have set out the key details clearly enough, and so HMRC assumed you were talking about a Relief at Source scheme under which you would need to claim higher-rate relief if entitled (and as you are are a basic rate rather than higher rate taxpayer said you were not entitled to claim relief). The key points you need to make are:

• You have made a contribution of about £42,000 (be precise in your letter) into a registered pension scheme which does not provide any tax relief on contributions
  
• The pension contribution did not benefit from any tax relief under either net pay arrangement nor relief-at-source arrangements (this is self-explanatory from the point above, it is just to help HMRC understand that this is not a typical sort of contribution and using the technical terms helps with that)
  
• You are a basic rate taxpayer (I assume, based on your post above)
• Include details of all your taxable income (salary, bonus, expected pension for remainder of 2020/21 and anything else)
• Include details of your standard and lump sum pension contributions
• Include evidence of the pension contribution
  

There is no requirement to use an accountant or even to do self-assessment to reclaim the relief (although as there is a specific box on self-assessment for this type of contribution it does avoid dealing with HMRC officers and the HMRC computer will make the right calculation). Once HMRC understand your pension contribution you will receive the relief due.

Hopefully that will get it sorted, but you might need to come back to the forum with HMRC's response.

Dear Hugheskevi, thank you very much for your detailed advice. It is very helpful. I will post the letter to HMRC on Monday and will come back with their response. Best regards.

Marcon

Be careful with the first point:

• You have made a contribution of about £42,000 (be precise in your letter) into a registered pension scheme which does not provide any tax relief on contributions

The moment you say it's the NHS scheme, someone at HMRC will stop reading and tell you it's a net pay arrangement and you've had your tax relief at the time you contributed. I'd leave it out to ensure they go on reading the rest of the excellent info suggested by Hugheskevi.

Dazed_and_C0nfused

I   sent proof of my additional pension to HMRC and requested %20 tax relief as I understand I cannot be taxed twice for the same  money. £42,000 was my savings from my taxed earnings in the last 15 years.

Tax relief on a gross contribution such as the one you appear to have made does not work quite like that.

The amount of tax relief will depend on your taxable income in the year you made the contribution.  

Can you give us an idea of what you earned (taxable pay that would be shown in your P60) in the tax year you made the contribution in?  And was that wage your only source of taxable income?

There is usually no need whatsoever to complete a Self Assessment return in this situation but you do need to be careful how you explain this to HMRC as it relatively rare when compared to relief at source contributions.

tibbles209

Hi, I am an NHS 2015 scheme member and have bought additional pension by lump sum twice in the past, and also had the runaround from HMRC.

HMRC owe you tax relief (not the NHS), although perhaps not on the whole £42k depending on your income (you can only get relief of the tax actually paid this year). HMRC very much struggle to understand how tax relief for DB scheme additional pension purchases work, and it took me 3 letters and a phone call the last time before they got it correct.

The lady who finally resolved it for me told me that this type of purchase is classified by HMRC as a "Retirement annuity payment" and she advised me in future to use this wording to help HMRC correctly identify how to apply tax relief to it. 

Best of luck.

Dazed_and_C0nfused

The lady who finally resolved it for me told me that this type of purchase is classified by HMRC as a "Retirement annuity payment" and she advised me in future to use this wording to help HMRC correctly identify how to apply tax relief to it. 

She might class it as that but a retirement annuity payment is something which ended, other than for existing retirement annuity contracts, in 1988 and has absolutely nothing to do with purchasing extra benefits in a defined benefit scheme.

xylophone

This is unfortunately a not uncommon story. If you search this forum you will see others struggling over the years with getting tax relief on lump sum contributions like the one you made.

https://forums.moneysavingexpert.com/discussion/4043989/please-help-with-nhs-pension-purchase-and-tax-relief

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044240

There may be instances where insufficient relief has been given through the net pay arrangement because:

• the amount of relievable pension contributions paid by a member to one or more pension schemes operating the net pay arrangement in a tax year is more than the employment income they receive from the sponsoring employer(s) for the tax year
• it is not possible for the sponsoring employer or employers to deduct the whole amount of the contribution from the individual’s employment income.

In these circumstances a member may make a claim to obtain the balance of tax relief available on the contribution, generally via the Self-Assessment system.

hugheskevi

tibbles209 said:

The lady who finally resolved it for me told me that this type of purchase is classified by HMRC as a "Retirement annuity payment" and she advised me in future to use this wording to help HMRC correctly identify how to apply tax relief to it.

I think HMRC put the contribution through Tax Coding notice as a Retirement Annuity Contract as the tax relief is the same. For Self-Assessment (presumably as Self-Assessment is more modern) there are correct categories and recording a contribution such as this as a Retirement Annuity Contract contribution will trigger HMRC making queries.

It would cause further confusion to bring Retirement Annuity Contracts into this so I'd avoid mentioning anything about it to HMRC, although when it is processed a Tax Code might have an adjustment for contributions to a Retirement Annuity Contract which wouldn't be anything to be concerned about.