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Possible tax charge?

beseeinyou
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Possible tax charge?

#283968

Postby beseeinyou » February 13th, 2020, 11:37 am

My wife transferred her pension from the NHS to the LGPS Council scheme recently and she received a letter from them as the transfer seems to have increased her Pension Input Amount (PIA) for 2018 - 2019 to way above £40,000, the yearly limit, so she may have to pay a tax charge, amongst the complicated literature it makes mention of any amount being due can possibly be offset by any accumulated unused allowances from the last 3 years and advises you to check at this HMRC link they provide, upon inputting the various figures provided by the NHS and LGPS it provides a table which I have copied below, does anyone know how to interpret this as in does she owe something? or does the 3 year thing cancel it out?

Year.............Available Annual Allowance.........Pension Input Amount.....Amount On Which Tax is Due............Unused Annual Allowance

2018-2019............... £77,287..............................£168,468...........................£91,181.........................................£0

2017-2018...............£102,825.............................£26,488................................£0.........................................£37,287

2016-2017...............£105,592.............................£21,780................................£0.........................................£62,825

9/7/2015 - 5/4/2016..£100,037.............................£34,445................................£0.........................................£65,592

6/4/2015 - 8/7/2015..£140,037.............................£12,537................................£0.........................................£100,037

2014-2015................£60,987...............................£950..................................£0..........................................£60,037

2013-2014................£50,000..............................£29,013................................£0.........................................£20,987

Beseeinyou

scrumpyjack
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Re: Possible tax charge?

#284045

Postby scrumpyjack » February 13th, 2020, 4:32 pm

Transfers from another scheme do not count towards the PIA according to the Royal London technical website

https://adviser.royallondon.com/technic ... unts-2015/

I suggest you point out their error to the LGPS

beseeinyou
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Re: Possible tax charge?

#284081

Postby beseeinyou » February 13th, 2020, 7:36 pm

I had already tried that angle and the response was in an LGPS factsheet, link to it below, if you look at the end of page 1 going onto page 2 you will see that it specifically mentions the transferring in from another public sector scheme is a factor unfortunately:

https://www.falkirkpensionfund.org/medi ... r-fcpf.pdf

Anyone understand the HMRC table?

Beseeinyou

parallellines
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Re: Possible tax charge?

#284087

Postby parallellines » February 13th, 2020, 7:54 pm

My mind has gone blank on the precise significance of the 2015/016 split financial year in the Annual allowance calculation that you posted. I have ignored the pre July 2015 element since the split works in your favour. But subject to that, it looks like the calculation of £91181 amount on which tax is due already allows for the three year clawback of unused AA. This is how it is derived.


PIA 168468;
Less: 40000 2018/19 AA
Less: 5555 unused post 9 July 2015/16 AA (=40000- 34445)
Less 18220 unused 2016/17 AA (=40000- 21780)
Less 13512 unused 2017/18 AA (= 40000- 26488)
Equals 91181 amount on which tax is due.

The link to the Royal London technical website is clearly stated as relating to defined contribution pension schemes only and isn't relevant to any defined benefit scheme let alone an oddball like the LGPS.

So unfortunately based on the information here there does appear to be a substantial liability to tax. Against that, I'm assuming the transfer must have substantially increased your wife's accrued pension to result in the large PIA. Also (unless there is some get out for public sector schemes) the scheme should offer a mechanism where the scheme meets the immediate tax liability in return for your wife giving up some of the large increase in accrued pension.

beseeinyou
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Re: Possible tax charge?

#284475

Postby beseeinyou » February 15th, 2020, 11:53 am

Many thanks Parallel, I can see how the figure is arrived at now, it's a blow to say the least as it wasn't something we were aware of when transferring came up, but after checking the numbers I'm glad to say that even with the tax charge she is still better off than having left it in the NHS deferred, so we can take some consolation from that.

Yes it was a decent pay rise at the time and also NHS contributions are higher than LGPS so the transfer "bought" in substantially more "service" so that had pushed up the future payout, which is why it was so attractive at the time to transfer, it's also pretty annoying that if this had happened 10 years ago she wouldn't have been charged anything.

And yes she will make arrangements for the scheme to take care of it through a reduction in pension / lump sum.

Thanks again for your input.

Beseeinyou


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