Refund of excess pension contribution paid in 2009/10 & 2010/11

20 November 2009

We are pleased to confirm that, subject to a charge to cover our administration costs, we intend to offer members of the James Hay SIPP the opportunity to have contributions returned to them should they find that the Special Annual Allowance charge applies.

 

The refund will be paid during the tax year following the relevant tax year when the contributions were made. Affected members must notify James Hay after the end of the relevant tax year, providing such evidence as James Hay may require in accordance with HMRC guidance to be published.

 

James Hay as scheme administrator will be liable for a tax charge in respect of the refund (40% for contributions made in 2009/2010 and refunded in 2010/2011) the amount being deducted from the refund.

 

Any associated costs for implementing a refund must be paid for by the member's SIPP plan. In due course we shall issue an associated schedule of costs for our members.

 

Background

From 6 April 2011 higher rate tax relief will be restricted for those individuals with an income of £150,000 or more. Relief will be tapered away such that for those whose income is £180,000 or more tax relief will be restricted to the basic rate (20%).

The Government has introduced anti-forestalling provisions that are designed to stop people from increasing their normal rate of pension savings in advance of the new limitation.

During the tax years 2009/10 and 2010/11 a tax charge will be imposed on those individuals

• Whose total income is £150,000 or more in the tax year or in the two preceding tax years and
• Who increase the level of their pension savings on or after 22 April 2009 beyond their normal ongoing pattern of pension savings and
• Whose pension savings exceed £20,000 (increasing to £30,000 in certain cases)

The tax charge is currently 20% of the excess.

HMRC are aware that individuals may inadvertently make contributions that fall foul of these rules and have therefore made provision for a contributions refund lump sum to be paid in such circumstances.

The following conditions apply -

• The refund must apply to individual contributions paid in either of the tax years 2009/10 or 2010/11
• the refund lump sum is paid in the tax year following the tax year to which the refund relates (i.e. if the refund relates to contributions paid in 2009/2010, the payment must be made in 2010/2011),
• the amount of the refund does not exceed the amount of the contributions paid by the individual under the arrangement in the tax year in question

Please note that every care has been taken to ensure that the information provided in this guide/article is correct and in accordance with our understanding of current law and HM Revenue & Customs practice. You should note however, that James Hay cannot take upon itself the role of an individual taxation adviser and independent confirmation should be obtained before acting or refraining from acting upon the information given. The law and HM Revenue Customs practice are subject to change.