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    • Cramgirl
    • By Cramgirl 16th May 18, 9:47 PM
    • 1Posts
    • 0Thanks
    Reclaiming tax on Pension lump sum
    • #1
    • 16th May 18, 9:47 PM
    Reclaiming tax on Pension lump sum 16th May 18 at 9:47 PM
    I’m look for some advice re claiming a tax refund on a lump sum AVC payment made in Jan this year.
    My situation is as follows:
    I was in my employer’s defined benefit pension scheme for over 20 years, until getting made redundant in Feb this year.
    I was a higher rate taxpayer.
    Just prior to being made redundant I made a ‘one off’ lump sum payment of £30k into an AVC scheme via my employer. This was not done through payroll as it was all a bit ‘last minute’ and was instead remitted as a BACS payment.( To be honest, I have been rather lax in taking advantage of the tax benefits of AVCs and it was only my impending redundancy that focused my attention in this matter).
    Before making the lump sum, I received confirmation from my Company pension dept that the AVC payment was within the applicable Annual Allowance.
    My taxable earnings in tax year 2017/18 were c£65k. I did not earn any further income in the tax year post redundancy.
    I’m now a little confused as to the amount of tax refund I can expect and also how this is achieved.
    I’ve just read an article where the writer suggested (for higher rate taxpayers) that a 20% tax refund was processed via HMRC and the other 20% was processed by the pension provider in the form of an enhancement to the lump sum amount.
    Whilst this makes sense, an email from my former company’s pension dept indicates that the investment firm they use does not follow this path. It reads as follows:-

    “ XYZ Ltd would not do any tax reclaim. If you invest £30k we will issue you with an acknowledgement for that £30k which you would take to HMRC/include on your self assessment in order to get the tax back”.
    I’ve never had to complete a tax self -assessment form.
    Do I just put together a letter to HMRC stating the above information and provide a copy of the acknowledgement letter I now have to hand confirming the £30k lump sum investment?
    If anybody has any comments/suggestions/observations I’d be most grateful.
Page 1
    • dunstonh
    • By dunstonh 16th May 18, 10:13 PM
    • 92,611 Posts
    • 59,921 Thanks
    • #2
    • 16th May 18, 10:13 PM
    • #2
    • 16th May 18, 10:13 PM
    !!!8217;m now a little confused as to the amount of tax refund I can expect and also how this is achieved.
    Payments made as employee contributions, not through payroll, are paid net of basic rate tax.

    Any higher rate is reclaimed either by the tax return (if you get one) or by notifying HMRC of the contribution. A very simple and short letter to them is usually fine. Including proof of payment is optional. HMRC dont normally need it as pension contributions are recorded under your NI number.

    Before making the lump sum, I received confirmation from my Company pension dept that the AVC payment was within the applicable Annual Allowance.
    As it happened, you probably had a lot more available than just last years annual allowance as your earnings level meant that carry forward was probably open to you. That allows you to use last years and the previous 3 years unused allowance.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Dazed and confused
    • By Dazed and confused 16th May 18, 10:29 PM
    • 2,557 Posts
    • 1,227 Thanks
    Dazed and confused
    • #3
    • 16th May 18, 10:29 PM
    • #3
    • 16th May 18, 10:29 PM
    From what you've posted it looks like you haven't received any tax relief so far i.e. your pension fund will have been credited with £30,000 rather than the £37,500 you would normally expect when basic rate tax relief is added by the pension company.

    Previous posters in this situation have encountered a little difficulty obtaining the tax relief from HMRC so from past experience it is important you make it clear to HMRC that no tax relief has been received at source and providing proof of this is probably a good idea.

    You do not actually get any specific pension tax relief, the contribution (when made with no basic rate tax relief being added) is effectively an extra tax free allowance a bit like the Personal Allowance.

    You should get a tax calculation from HMRC to this effect i.e. your £65k will be reduced by the Personal Allowance and the pension payment leaving you with about £23.5k on which tax is owed for 2017:18. You should have already paid far more tax than this whilst employed and will get the excess refunded.

    Assuming your P45 shows taxable income of £65k you will effectively receive some tax relief at 40% and some at 20%.

    From what you've posted I doubt you will need to complete a Self Assessment tax return but you might have to.
    Last edited by Dazed and confused; 16-05-2018 at 10:40 PM.
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