How to declare pension contrib to HMRC?

FatherAbraham

I intend to make a large, final contribution to a SIPP before reversing the cashflow direction and taking taxable income, triggering the Money-Purchase Annual Allowance in the same tax year.

How do I notify HMRC of the single, large pension contribution, to ensure that my tax code for pension withdrawals will be correct?

Linton

The first ever taxable withdrawal from a pension will be taxed using an emergency tax code irrespective of your actual circumstances. HMRC will then inform the pension company of the tax code that should be used for future withdrawals. You cannot do anything in advance to prevent this happening.

The emergency tax code is non cumulative meaning that you only get 1/12 of the annual tax allowance and tax bands.

If, as is likely, excess tax has been deducted you either wait until after the end of the tax year for HMRC to determine your exact tax position or you can ask them (using a standard form) for an early repayment.

Another approach could be to make a small initial withdrawal and then wait for a proper tax code to be issued before taking the large one.

Marcon

A SIPP is a Relief at Source scheme so you don't need to contact HMRC about your contribution unless you need to claim higher rate tax relief on it, or you exceed the Annual Allowance.

GenX0212

If you are making a large contribution and then taking your pension soon after then make sure you don’t fall foul of the recycling rules if you are intending to take a lump sum.

westv

https://forums.moneysavingexpert.com/discussion/comment/82136884#Comment_82136884

That isan't recycling.

FatherAbraham

https://forums.moneysavingexpert.com/discussion/comment/82136817#Comment_82136817

This answer doesn't make sense to me.

My first monthly withdrawal from the pension will be taxed using an emergency code perhaps (hmm, what if I provide a P45 from my previous employer?), but subsequent monthly withdrawals will use the tax code provided by HMRC, which will enble the pension provider to correct any overpayment made in month one.

My question is about making sure that HMRC is aware of the large single contribution, so that it can provide a tax code which will take account of any higher-rate tax relief due in the same tax year.

If this is done correctly, there's no need for a reclaim, because PAYE will do its job properly.

Tony_J

I did similar a few years ago. Basic rate tax was added by HMRC. i.e. I paid in £16K some time later (maybe a few weeks or a couple of months) HMRC pay in 4K. So if your getting close to the limit of what you can put into your pension and get tax relief on you should take this into consideration.

I then got a "certificate" =pdf file notarising the amount paid in from the platform provider, which I gave to HMRC to adjust my tax code to reflect the 40% tax I'd paid.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82136996#Comment_82136996

Are you sure about that? No figures have been mentioned (so maybe recycling can be absolutely ruled out for that reason) but the mere fact you make the contribution before you take the lump sum is no protection.

westv

https://forums.moneysavingexpert.com/discussion/comment/82137073#Comment_82137073

Recycling refers to taking money out and then putting it back in. Not putting money in and taking it back out.

DRS1

https://forums.moneysavingexpert.com/discussion/6683319/how-to-declare-pension-contrib-to-hmrc

Do you do self assessment? If so you report the contribution in there - but that may be too late for your purpose.

There is an online form for reporting pension contributions (but you can't use it if you are under self assessment). It can be found here

Claim tax relief on your private pension payments - GOV.UK

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82137083#Comment_82137083

Sadly that is not how the rule is worded. You have a five year window around the year you take the lump sum with two years before and two years after. There is a useful note here including a flow chart to see if you might get caught. It is something which gets discussed a lot but nobody really knows if it something to get overly worried about.

Recycling of tax-free cash & pension recycling rules - Royal London for advisers