Exceeded Annual Allowance Questions...

venster

Hi.

I have exceed the AA for this financial year and have a few questions to ask about paying the tax on it.  I'll try and keep it simple!

My understanding is the tax bands are 

Up to £125,140 it's 40%
Above £125,140 it's 45%

My taxable pay is in the 40% bracket, but when I add my AA excess to my taxable pay it takes me in to the 45% bracket. 

Is this how it works?

I can pay the tax through my 'Scheme Pays' option. 

So would I be correct in saying that the part of the excess AA that takes me to 40% threshold is paid at 40% ?

And the rest is payable at 45%?

Thanks.

Grumpy_chap

Did you exceed the AA by contributing more than your earnings in the year?
OR, did you exceed the AA by going over the £60k threshold?
If the latter, do you have any carry-forward available?  That would mean you may still be within the rules.

With regard to tax bands, you have not mentioned the withdrawal of the Personal Allowance which kicks in at £100k and creates and effective marginal rate of 60% for £25k.

venster said:

Hi.

I have exceed the AA for this financial year and have a few questions to ask about paying the tax on it.  I'll try and keep it simple!

My understanding is the tax bands are 

Up to £125,140 it's 40%
Above £125,140 it's 45%

My taxable pay is in the 40% bracket, but when I add my AA excess to my taxable pay it takes me in to the 45% bracket. 

Is this how it works?

I can pay the tax through my 'Scheme Pays' option. 

So would I be correct in saying that the part of the excess AA that takes me to 40% threshold is paid at 40% ?

And the rest is payable at 45%?

Thanks.

michaels

Threshold was 40k for last year. 

Edit I see the OP says for this FY so perhaps 60k applies but as we are still in the FY they may be able to reverse the transaction if for example it is a sipp investment.

Marcon

venster said:

Hi.

I have exceed the AA for this financial year and have a few questions to ask about paying the tax on it.  I'll try and keep it simple!

My understanding is the tax bands are 

Up to £125,140 it's 40%
Above £125,140 it's 45%

My taxable pay is in the 40% bracket, but when I add my AA excess to my taxable pay it takes me in to the 45% bracket. 

Is this how it works?

I can pay the tax through my 'Scheme Pays' option. 

So would I be correct in saying that the part of the excess AA that takes me to 40% threshold is paid at 40% ?

And the rest is payable at 45%?

Thanks.

Why and how did you exceed it - and do you want to reverse that position? If so, you may be able to do so. See https://forums.moneysavingexpert.com/discussion/6452442/paid-too-much-into-sipp#latest

venster

Hi.
I’ve used all my carry forward from the last 3 years and my benefits statement says I’ve exceed it by £53k for this FY. 

I was hoping it would be a straight forward calculation as I don’t fully understand the tax implications. 

Would I be better off paying for financial advice or is it something I could work out myself?

venster

Marcon said:

venster said:

Hi.

I have exceed the AA for this financial year and have a few questions to ask about paying the tax on it.  I'll try and keep it simple!

My understanding is the tax bands are 

Up to £125,140 it's 40%
Above £125,140 it's 45%

My taxable pay is in the 40% bracket, but when I add my AA excess to my taxable pay it takes me in to the 45% bracket. 

Is this how it works?

I can pay the tax through my 'Scheme Pays' option. 

So would I be correct in saying that the part of the excess AA that takes me to 40% threshold is paid at 40% ?

And the rest is payable at 45%?

Thanks.

Why and how did you exceed it - and do you want to reverse that position? If so, you may be able to do so. See https://forums.moneysavingexpert.com/discussion/6452442/paid-too-much-into-sipp#latest

I have a very good DB pension and am led to believe the increase is due to the RPI and my employer’s obligations. I’ve not paid any extra contribution other than my normal contribution. 

Marcon

venster said:

Marcon said:

venster said:

Hi.

I have exceed the AA for this financial year and have a few questions to ask about paying the tax on it.  I'll try and keep it simple!

My understanding is the tax bands are 

Up to £125,140 it's 40%
Above £125,140 it's 45%

My taxable pay is in the 40% bracket, but when I add my AA excess to my taxable pay it takes me in to the 45% bracket. 

Is this how it works?

I can pay the tax through my 'Scheme Pays' option. 

So would I be correct in saying that the part of the excess AA that takes me to 40% threshold is paid at 40% ?

And the rest is payable at 45%?

Thanks.

Why and how did you exceed it - and do you want to reverse that position? If so, you may be able to do so. See https://forums.moneysavingexpert.com/discussion/6452442/paid-too-much-into-sipp#latest

I have a very good DB pension and am led to believe the increase is due to the RPI and my employer’s obligations. I’ve not paid any extra contribution other than my normal contribution. 

In that case tax is payable at your marginal rate. There's a good explanation of the whole process here (much of which applies, at least in generic terms, to non-medics): https://www.bma.org.uk/pay-and-contracts/pensions/pensions-tax/your-annual-allowance-statement-and-exceeding-the-limit

venster

Marcon said:

venster said:

Marcon said:

venster said:

Hi.

I have exceed the AA for this financial year and have a few questions to ask about paying the tax on it.  I'll try and keep it simple!

My understanding is the tax bands are 

Up to £125,140 it's 40%
Above £125,140 it's 45%

My taxable pay is in the 40% bracket, but when I add my AA excess to my taxable pay it takes me in to the 45% bracket. 

Is this how it works?

I can pay the tax through my 'Scheme Pays' option. 

So would I be correct in saying that the part of the excess AA that takes me to 40% threshold is paid at 40% ?

And the rest is payable at 45%?

Thanks.

Why and how did you exceed it - and do you want to reverse that position? If so, you may be able to do so. See https://forums.moneysavingexpert.com/discussion/6452442/paid-too-much-into-sipp#latest

I have a very good DB pension and am led to believe the increase is due to the RPI and my employer’s obligations. I’ve not paid any extra contribution other than my normal contribution. 

In that case tax is payable at your marginal rate. There's a good explanation of the whole process here (much of which applies, at least in generic terms, to non-medics): https://www.bma.org.uk/pay-and-contracts/pensions/pensions-tax/your-annual-allowance-statement-and-exceeding-the-limit

Marcon said:

venster said:

Marcon said:

venster said:

Hi.

I have exceed the AA for this financial year and have a few questions to ask about paying the tax on it.  I'll try and keep it simple!

My understanding is the tax bands are 

Up to £125,140 it's 40%
Above £125,140 it's 45%

My taxable pay is in the 40% bracket, but when I add my AA excess to my taxable pay it takes me in to the 45% bracket. 

Is this how it works?

I can pay the tax through my 'Scheme Pays' option. 

So would I be correct in saying that the part of the excess AA that takes me to 40% threshold is paid at 40% ?

And the rest is payable at 45%?

Thanks.

Why and how did you exceed it - and do you want to reverse that position? If so, you may be able to do so. See https://forums.moneysavingexpert.com/discussion/6452442/paid-too-much-into-sipp#latest

I have a very good DB pension and am led to believe the increase is due to the RPI and my employer’s obligations. I’ve not paid any extra contribution other than my normal contribution. 

In that case tax is payable at your marginal rate. There's a good explanation of the whole process here (much of which applies, at least in generic terms, to non-medics): https://www.bma.org.uk/pay-and-contracts/pensions/pensions-tax/your-annual-allowance-statement-and-exceeding-the-limit

So would my calculations in my original post cover it?

Ciprico

I over paid by paying in more than I earned. I paid net and should have paid gross.  After supplying proof (P60) Interactive Invester simply returned the overpayment to me...

Doctor_Who

Ciprico said:

I over paid by paying in more than I earned. I paid net and should have paid gross.  After supplying proof (P60) Interactive Invester simply returned the overpayment to me...

Surely pension contributions should be paid net and are then grossed up with the tax relief? If you paid the gross amount of your earnings in to your SIPP then the tax relief would take you over the annual allowance.

michaels

venster said:

Marcon said:

venster said:

Hi.

I have exceed the AA for this financial year and have a few questions to ask about paying the tax on it.  I'll try and keep it simple!

My understanding is the tax bands are 

Up to £125,140 it's 40%
Above £125,140 it's 45%

My taxable pay is in the 40% bracket, but when I add my AA excess to my taxable pay it takes me in to the 45% bracket. 

Is this how it works?

I can pay the tax through my 'Scheme Pays' option. 

So would I be correct in saying that the part of the excess AA that takes me to 40% threshold is paid at 40% ?

And the rest is payable at 45%?

Thanks.

Why and how did you exceed it - and do you want to reverse that position? If so, you may be able to do so. See https://forums.moneysavingexpert.com/discussion/6452442/paid-too-much-into-sipp#latest

I have a very good DB pension and am led to believe the increase is due to the RPI and my employer’s obligations. I’ve not paid any extra contribution other than my normal contribution. 

I think there is potentially some sort of scheme pays (via a loan form the pension?) for govt DB over-payments. 
I would still think that the RPI issue relates to the 22/23 tax year rather than the current one though?