pension over-contribution repayment?

micklesthwaite

Hello,
I understand that if you have overpayed into a Sipp by the end of the year you then have to pay a charge. Could anyone explain what this charge is and how it is collected?

Using the example below (all values after tax relief added):
A's salary is 40K, giving him a total of 40K he can personally contribute.
He contributes 10K through his workplace scheme.
This leaves 30K he can put in himself as a lump sum from savings.

Then A has to stop working halfway through the year and by the end of the year his salary is only 20K. By this time his personal workplace contributions will have amounted to 5K.
The 30K lumpsum added at the start of the year will make the total 35K on what was only a 20K salary.

How is that extra 15K charged. Would the tax relief received simply need to be repaid or are there fines to consider?

Thanks

zagfles

They would need to tell the pension provider, but an alternative is to ask for a refund of the excess contributions. This is one of the few situations where pension contributions can be refunded.

micklesthwaite

What if the those contributions had gone into stocks which had increased in value, would you keep that growth and just have the original overpayment refunded?

How is the tax relief refunded to the government?

zagfles

See

PTM045000 - Contributions: refunds of contributions - HMRC internal manual - GOV.UK

PTM044220 - Contributions: tax relief for members: methods: relief at source - HMRC internal manual - GOV.UK