Overcontributing to pension

Colinstewart76 · October 2017

Say a client has £15k relevant earnings in 16/17 and made a personal pension contribution inadvertently of say £20k gross (without advice), they've obviously received more tax relief at source than they should have. I know HMRC say it's the member's responsibility to check they've not received more tax relief than they are entitled to and HMRC could ask for it back. I don't think the client completes a tax return so HMRC wont know about it unless the client owns up (which they want to do by the way).

Does anyone know how this would work in practice? Contact the provider maybe or should they complete a self assessment tax return for 16/17?

Jona · October 2017

"....If the person liable to an annual allowance charge hasn’t completed a tax return before (or it’s been some time since they did), they will need to complete a registration form to let HMRC know what’s changed and to get a tax return."

Colinstewart76 · October 2017

Thanks Jona, but I don't believe they are liable for an annual allowance tax charge as the contribution was lower than the annual allowance.

Suse1969 · October 2017

Hi Colin, I asked our tax team and they say (i) try the provider as some might refund the tax to HMRC and (ii) if the provider doesn't, just give HMRC a call. It's basically the same as a HRT person getting the additional tax relief.

They don't think your client will be asked to fill in a return, but they suggest the order as above.

Colinstewart76 · October 2017

Thanks Susan - I thought contacting the provider might be the way to go first with this one.

benjaminfabi · October 2017

My understanding is that:

If you exceed relievable limits but do not breach your annual allowance, then you are ok to declare it to your pension provider and ask for the position to be corrected. If you've completed a tax return then it will also be declared there with any tax band increases based on the true position

If you contribute more than the available annual allowance, you will be liable for the aa tax charge on the excess. This can't be reversed.

Off the top of my head I'm not what happens when you sure if you do both (but it's not gonna be good!)

In your scenario @Colinstewart76 it's the first paragraph. The provider will need either a p60 and a declaration of all employments, or a submitted tax return for the year in question.

Colinstewart76 · October 2017

Thanks @benjaminfabi - begs the question whether the provider will also refund the net excess contribution back to the member - I guess any reasonable provider would offer the opportunity but there is the problem of potential loss on that money in the meantime I suppose.

benjaminfabi · October 2017

Yes they should. Standard Life does as I dealt with a case on the SL Wrap last year.

But it will only refund the net contribution. You can't refund investment growth as that's an unauthorised payment. I had no indication of whether there would be a deduction for any investment loss. I suspect not.

Here are the rules
https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm045000#Refundecls

Colinstewart76 · October 2017

Thanks :-)

Rebecca_Tuck · April 2019

I love this place - 18 months later and this was the top result on my Google search.

Thanks for the link @benjaminfabi!

Overcontributing to pension

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