Savers warned they could be hit with high pension tax bills
Taxpayers are being warned that they could face unexpected tax bills for failing to declare details of their annual allowance charge on their self assessment returns.
HMRC has asked scheme administrators to remind members who have exceeded their annual allowance for 2018 to 2019, and who do not have sufficient unused annual allowance to carry forward to cover the excess, that they must declare this on their self assessment tax return.
The tax authority said that it is aware scheme members are forgetting to declare details of their annual allowance on their self assessment returns. It admitted it has received a number of questions from scheme administrators about how to report details for 2019 and 2020 of those who have relied on more recent lifetime allowance protection.
When completing annual tax returns, taxpayers are asked if they have put money into a pension above the ‘annual allowance’ – currently £40,000 per year for most people, but as little as £10,000 for those affected by the ‘tapered annual allowance’.
Royal London points out that this would include growth in an individual’s defined benefit pension rights as well as cash paid in to defined contribution pots.
The insurer warned that pension schemes will only notify members if they have breached the £40,000 annual allowance limit. If an individual is caught in the ‘tapered annual allowance’ and perhaps has an annual allowance between £40,000 and £10,000, the scheme may not be aware of this and may not notify the member.
Royal London director of policy Steve Webb explained that thousands of people could be set to face huge tax bills because they have innocently failed to declare this information on their tax return.
“HMRC needs to get to the bottom of how many people have failed to declare this information and contact them immediately. And the next government needs to radically simplify the tax relief limits, to avoid this sort of situation happening again,” said Mr Webb.
HMRC has advised scheme administrators to email them at [email protected] if they need to report details of their members who have relied on individual protection 2014 (applied for using the digital service); fixed protection 2016; or individual protection 2016.