LTA and Age 75 - Dealing with HMRC

HarperBoy

I have a Defined Benefit pension which is enough to get by on, so I do not take any income from a SIPP I set up years ago as tax-efficient saving vehicle. I make no pretence to having had a clear (or even vague) understanding of the LTA regulations regarding reaching age 75 until after I hit that birthday in 2022, and was unpleasantly surprised to find that the company holding my SIPP calculated that I had a tax bill of over £26K to pay.

So be it; I have consulted a Financial Adviser who assures me that the company’s calculations were correct. I didn’t like it, but accept that them’s the rules. At least I didn’t have to rummage down the back of the sofa because the pension company advised me that they would extract the relevant amount from my pension pot and send it straight to HMRC. They did this in August 2023. So far, so good(ish); I suspect this is a fairly common experience.

However, I have a remaining concern, which is how – if at all – I need to correspond with HMRC about it. The pension company says ‘We pay this over to HMRC and confirm to them that this is LTA tax charge – it does not affect any other income taken in the same tax year. As this is not income tax it will not be shown on your P60. However, you should declare this in your tax return under the Pension Section’. I hit 75 in FY 22/23 but had no idea there was a tax charge coming, and so included no such reference in that year’s tax return. The company didn’t take the money and send it to HMRC until August 2023, so should I now make reference to it in my 23/24 tax return? And if so, how?

Would it be simpler to make no mention of it in my SA return but instead to write separately to HMRC and tell them what has happened?

gm0

At this point. Personally I'd ignore it.  And let them care. Which they likely don't and won't. Or go the separate letter route if you feel the need and it bothers you.

You were hit for an LTA charge under the age 75 tests (growth net income since first access, or value if never touched).  Above 100% LTA usage this generated a 25% charge on the excess value.   Sound like most of your LTA % was consumed by the DB pension x20 approach.  So the SIPP was partly or fully over 100%.
So 25% on the excess.

Having paid it. It's not material to self assessment income tax due then or now.  As you are all paid up there is no upside to HMRC to chase you over it being missing as notes on a SA return.

I am not sure exactly why they really want redeclaration. Suspect it probably arises from systemic distrust of the LTA monitoring across schemes. A mess of their own making (treasury anyway).  i.e. double checking you have paid it for all pensions you have that are above the line.  And that your providers know what your LTA% was at.
And have done the taxes. Making a positive declaration in the age 75 tax year forces you to "confirm" the position - at penalties if it is a deceitful declaration.  In this case - all paid up.  There is no concealed unpaid tax and no fault worth investigation or chasing.  Nothing to see - move along.

So no upside I can see in reopening old return.  And definitely not confusing them in this tax year with a transaction that isn't this year. 

Rather unlucky timing given the abolition of LTA shortly after.

6th April 2023 - 0% rating
6th April 2024 - full abolition

Nothing you could do.  DB in payment (consumed 20x income as LTA%).  Age 75 approaching. SIPP waiting for that age based BCE rule to trigger on your birthday. Dates are as they are.

The only scenario where you could have been short changed in tax paid is if the provider was laggardly in updating their processes to stop charging at 25% and start charging at 0% and your 75th birthday was AFTER 6th April 2023. i.e. they did it wrong because they had not updated their processes on time.

But with a 75th birthday before the April 2023 tax year start date - this was likely tax paid as due.

Your are "meant" to do a lot of things for HMRC.  My wife is a company director of our ltd. She is meant to do a tax return. Our accountant tells me this (correctly).  Which doesn't stop HMRC writing to her to tell her not to do one. 
They are *meant* to do a lot of things too.  Like answer the phone. 

Consequences of not bothering here are likely minimal.

But if it makes you feel better (completionist) - write to them telling them you didn't tell them about it happening on the 22/23 return. But it did.  Age 75 test happened and was paid. No further action needed or requested.
Just correctly declaring it.  And they can throw the letter in the bin while looking slightly puzzled.

HarperBoy

Brilliantly put!  Thanks, gm0