Case – Pensions Tax Charge Review

Introduction

In preparing a tax return for our client, we identified that in prior years he had not been considering his pension contributions and how this could impact his tax liability.

The issue

The issue was that our client may have been liable to pay the pensions annual allowance tax charge due to his excessive levels of contributions.

The contributions were excessive as his income levels were above the thresholds which tapered his annual allowance each tax year.

It is an area that is not particularly well-known to the layperson, so it can be easy to be caught out with unexpected liabilities and penalties from HMRC.

How we solved it

We conducted a review of his income and pension input position in order to establish whether he was liable to pay the tax charge. This included looking back from 2017/18 to 2022/23 at the available allowances, any carried forward amounts and whether his income met the high thresholds.
Once we understood this, we assisted the client in reporting the charge on his self-assessment tax return accordingly.

The outcome

It was calculated that he was due to pay a small pensions tax charge for 2022/23, however for previous years he had sufficient carried forward allowance to cover his excessive contributions.

It gave the client certainty that he remained compliant with HMRC, and due to our advice ensured he was able to plan for his contributions going forwards.

Next steps

Do you need to be thinking about your pension contributions and how this could impact your tax liability? Get in touch for expert advice from our team of highly skilled tax advisers.