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Pension contributions

Just acquired a new client and am preparing his 2011/12 SA tax return.

For 2011/12 he has made pension contributions of £120k net (£150k) gross. This is a new pension and he tells me he has no previous pensions.  IFA advised him he could use £100k unused allowances b/f. I have looked into this and am struggling to see how he can get relief on the unused b/f allowances of £100k. Any help would be appreciated.If this helps many years ago he did work for a company for three month only, employer started to contribute to a scheme but took the contributions back and scheme was closed.   

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There would need to be a scheme open

for the last three years, even if no contributions were paid in those three years, to be able to pick up the unused reliefs.

Can you speak with the IFA to confirm on what basis he considers unused relief might be available. Presumably he did a full KYC review and ought to have the facts readily to hand.

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Thnaks ACDWebb. Penalty charge for over contributions?

I will discuss with IFA. Seperately if he is unable to claim the full tax relief, will thire be a penalty charge for making pension contributions in 2011/12 for avove the £50k limit?

 

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No

Just a clawbackof the HR relief on the excess

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ACDWebb

Thanks for your reply. I am getting confused now.

If he is allowed £50k pa limit on contributions( net £40K) ie £10 relief at source. Another £10k relief at higher rate.

He has contributed £40k x3 and therfore  has received extra £10k x2 at source. Is this OK?

Secondly

How do i clawback-HR relief on excess.?

 

 

 

 

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I'd understood...

...  that you get tax relief as normal and then the "clawback" was dealt with by way of an additional charge to income tax on the excess gross contribution as if it were added on as a top-slice to the net income after deducting the total gross pension contibution.

It's possible for the pension scheme to pay the charge though (imaginatively called "scheme pays"), but if there's more than one scheme, I think they can decline. That's another matter that should be discussed with the IFA though.

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Enter the excess in

SA101 TR page Ai4 Box 8, and see HS345 page 4 et seq

Enter the full amount of contributions paid SA100 page TR4.

The computation will give HR relief on the full premium, and then the entry at on Ai4 Box 8 will clawback relief on the excess

Doing it this way will help with the personal allowance reduction calculations in deducting the full pension contributions to determine whether any PA restrictionis required, as that is not affected by the pension relief clawback IIRC

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Update. Thankyou all

I have input the date into my tax return software.

Calculation 1. with £120k in Sa100. tax refund due is £44.5k rounded

Calculation 1+ completion of Sa101-box8- £70k ( £120k less £50k). tax refund is £9.5k

So this means net tax not refunded £35k.

which I think is correct. excess £70k @50% marginal rate.= £35k

Does this sound correct?

Obvioulsly I need to speak to the IFA

 

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Box 1 on TR4

should be showing the Gross premium £150k

The excess in Ai4 Box 8 should apparently be £100k (assuming max allowable @ HR is the Annual Allowance of £50K), and the clawback somewhere between £40k & £50k - ie £100k excess @ marginal rates

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ACDWebb thankyou I think i am now there

I have recaculated again. He is well into the 50% tax rate

Calculation1 with incusion of only £40k net ( ie £50k gross)pension ( ie maxamimum allowable relief) and have a tax refund of £(14510.75)

Calculation 2 with includion of £120net (£150k gross) actual paid in 2011/12. Plus £100k in Ai4 Box 8 and have a tax payable of £5489.25. in the computation a clawback of £50K is shown.

So the net movemnet is £20,000 extra tax   is that actual tax effect. Which coincidentially is the £20k basic rate tax relief he received for the original ce £100k( £80k net) pension contributions- which he is unable to bring forward.

So in conclusion. He is not getting any higher rate tax relief of the extra £80k pension contributions Plus the basic rate has been clawed back.

Is this correct?

Many thanks and i still need to talk to the IFA

 

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