Examination of tax charges on pensions

Introduction

In preparing a tax return for our client, we found that in previous years he had not taken into account his pension contributions and the impact this might have on his tax liability.

The problem

The issue was that our client could have been required to pay the annual retirement allowance due to his excessive contribution levels.

The contributions were excessive because his income levels were above the thresholds that reduced his annual allowance each tax year.

This is an area that is not particularly familiar to the lay person, so it can be easy to find yourself faced with unexpected liabilities and penalties from HMRC.

How we solved it

We carried out a review of his income and pension situation to determine whether he was liable for tax. This involved looking back from 2017/18 to 2022/23 on available allowances, amounts carried forward and whether his income met the high thresholds.
Once we understood this, we helped the client report the costs accordingly on their self-assessment tax return.

The result

It was calculated that he had to pay a small pension tax charge for 2022/23, but for previous years he had enough carryover to cover his excess contributions.

This gave the client confidence that they remained compliant with HMRC and, with our advice, allowed them to plan their contributions in the future.

Next steps

Do you need to think about your pension contributions and the impact this could have on your tax liability? Contact us to benefit from expert advice from our team of highly qualified tax advisors.