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Retirement Annuity Policy

I have always been Self-Employed, and have just discovered that my Accountant has not been claiming Tax Relief for my RAP ever since the rules changed in 2001 !

Even though they were already acting for me (and I had sent them details of my "Personal Retirement Plan"), when the rules changed they just presumed it was a Personal Pension, so stopped claiming relief against my earnings!  They say I should have noticed when signing off my return - but THEY are the experts!  How am I supposed to understand these kinds of technicalities?  At the very least, surely THEY should have made sure WHICH kind it was when the new rules came in? I therefore believe they have been negligent. (They always put my contributions down on my Self-Assessment Tax Returns, along with the policy, but STOPPED deducting the figure from my tax due from 2001)

I know they can re-claim the tax paid to HMRC for RECENT years, but I feel they should re-imburse me for the Tax I should have saved prior to this.

Opinions on that would be welcome . . . but MAINLY I am trying to find out about HMRC amounts and limits going back to 2000. . . . despite searching I can find no proper information relating to RAPs.

Firstly - what are the LIMITS in percentage of net income that could be contributed to an RAP?  I understand now it is 100%, but when did that change?  Is it true that prior to 2006 it was 25% if aged 46 - 50 and 30% if 51 - 55 ?  And if so, was that the same back in 2000?  And what should have happened if I contributed MORE than the allowed amount?  (by the way, the recent £50,000 limit is irrelevant, we are talking about much lower figures - typically £2 - £3,000 a year !)

Somewhere I have read that "RAPs are unaffected by the restrictions imposed on Personal Pensions introduced in April 2006" - but what Restrictions do and don't apply?!!


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By ACDWebb
08th Dec 2012 17:33

You will probably find

that if they assumed it to be a personal pension policy (PPP) rather than a retirement annuity (RAP) claimed in the return it is in the computation but not obvious due to the way that PPP's are handled in the comp.

RAP's are paid gross and deducted in the same way as personal allowances.

PPP's are paid net of basic rate tax, are grossed up in the return (so an £80 net contribution is currently claimed in the return as £100 including the BR relief at source) and because a PPP has given relief at source for the basic rate if you are not liable to the higher rate no further relief is due.

If you are liable at the HR relief is given by extending the BR band. The BR band for 2011/12 was £35,000. If you paid net PPP's of £800 they would have been included in your return as a gross claim of £1,000, and in the tax computation the BR band is increased to £36,000. If your taxable income after allowances was £40k then you would only pay the HR @ 40% on £4k (40-36k) instead of £5k (40-35k)

So, if you are liable at the HR in all years and your RAP has been claimed in the return as a PPP you will have received some additional relief for the premium, though not all.

It will be possible to correct the last 4 years by either amend the 2011/12 and 2010/11 returns, assuming the latter has not gone out of time, and if it has including that year and the two previous years in a claim to Overpayment Relief.

So far as years before that go you have no recourse through HMRC, but may have from your accountant in a negligence claim.

RAP's have not been available since July 1988, though if you had a pre existing policy you could continue to pay into the RAP gross. New policies set up after July 1988 could only be under the net paid PPP rules.

When did you take out the policy? How long have you been with your accountant? How long have you been completing returns / been se/f employed? Are you liable at the HR? All will be factors to take into account in determining the  amount of any loss, but I should have thought there might be some scope for a claim re the potential loss. If you are taxable at the HR and they have been grossing up the RAP as a net paid PPP then you will have had some measure of relief, though I will grant not all that is due.

As to limits that is getting back into the dim dark recesses of my mind containing bits of information that are not current and would require research in some dusty textbooks now.

Thanks (0)
08th Dec 2012 21:34

Many thanks - to clarify . . .

I've never earned enough to pay Higher Rate Tax, and I took out the RAP in 1987. Been with this Accountant since 1998.

The point is that, because it is NOT a Personal Pension Plan, NO additional 20% has ever been paid into my Pension by HMRC . . . I now realise it was up to my Accountant to include it in their Tax Calculation, thereby reducing the amount of Tax I paid each year by 20% of my Pension contributions (or more for earlier years). They were originally doing this until the rules changed in 2001?, but they say they thought it was a PPP so stopped doing so.

It's only NOW that I have found out that there are these TWO different types of Pensions - but as I say THEY obviously knew, and surely had a duty to find out which type mine was?!

OR is it simpler than that? Are you saying that PPPs were ALWAYS paid net of tax (from their first introduction in 1998), so the fact that they AT FIRST claimed the tax back for my Pension (but stopped in 2001) means they must have known it was an RAP type?

The problem is I can't now trust what they are telling me when it comes to the Rules !!  But I believe they should reimburse me for overpaid tax they can't claim back.

And as stated before, I would also appreciate any advice on percentage of income pension contribution limits for the last 12 years if anyone can help  (HMRC are a waste of time. and all the websites I've tried searching are vague or contradictory!)






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By ChrisA
09th Dec 2012 11:25

Also known as a Retirement Annuity Contract (RAC) or s226

They were basically the predecessors to the personal pension plan, designed for the self employed and employed who didn't have a company pension plan. You couldn't take a new one out after 1998.

Since A Day (6th April 2006) they have been brought into line with personal pension plans but before that the contribution rules were broadly as follows:

(percentage of Net relevant Earnings you could pay in.)

Age <50 - 17.5% of NRE

51-45 - 20% of NRE

66-60 - 22.5% of NRE

61-74 - 27.5% of NRE

The 25% and 30% contributions you mention in your OP are the rules relating to personal pensions which came after RACs.

Nowadays its either £3600 or 100% of Net relevant earnings up to the annual allowance. (currently £50k)

With regards to tax relief, RACs were paid gross regardless of whether or not you were employed or self employed. Nowadays they can be paid either gross and tax relief claimed back or you can get relief at source - it depends on your scheme provider to determine which system they use.

Thanks (0)
09th Dec 2012 12:40

Thanks for that Chris . . . .

On a separate note, my income has now just dropped really low, just below the Tax Allowance . . . so I can't get ANY Tax Relief on my Pension Contributions !  Now I understand the two different types of Policy, I was therefore thinking of changing to a PPP, as you still get the extra 20% into your Pension even if you're not paying any tax - but interesting that you say the company COULD claim Tax Relief at Source even on my RAP.

Thanks (0)
By ChrisA
09th Dec 2012 12:57

This should help

You may wish to consider stakeholder pensions but as always, get some specialist advice first.


Thanks (0)
09th Dec 2012 18:48

Another Question . . . .

Yes I will certainly get advice on what to do about FUTURE Pension Contributions . . 

But maybe someone can help with this:  Is it true, as my Accountant says, that prior to April 2001, even with Personal Pension Plans you had to claim the tax back gross ? (ie the extra 20% was NOT paid by the government into these accounts UNTIL 2001)

This is fundamental, as they are using this as an excuse (I originally thought they stopped claiming tax back on my contributions from 2001 BY MISTAKE)

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By DMGbus
09th Dec 2012 20:00

1st July 1988 was RAR / PP change date

Retirement Annuity Policiies ceased to be sold after June 1988, existing policies continued and have always had premiums paid gross.

On 1st July 1988 personal pensions were introduced for new policies which I recall initially only gave tax relief at source for employees - tax relief at source was introduced some years later (I can't recall when) for the self-employed.

This is why whenever I take a new client on I ask them the date that they took out their pension policy (as in landmark date 1st July 1988).

It might be worthwhile seeing if the following organisation can answer your unanswered questions:

Thanks (0)
09th Dec 2012 20:34

Funnily enough I found that website on Friday, but after their lines had closed . . . and planned to ring them tomorrow morning!

But what you said YOU do with a client is what mine FAILED to do, ie establish WHICH kind of personal pension mine was . . . and their failure to do so and therefore reduce my tax bill each year since 2001 I believe was negligent.

I've already told them I expect them to reimburse all of my overpaid tax they can't reclaim from HMRC . . . . but they've replied saying it wasn't their fault as I failed to tell them that my pension was an RAP type! (I had no idea there were two different types until last week)

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