You should always ask yourselves whether you have made any pension contributions in the tax year, but you also need to check whether you have accessed any of your pension savings in that year or in an earlier tax year.
Where you have flexibly accessed your pension benefits from a defined contribution pension scheme or SASS, your pension contributions should be restricted from that date onwards (the trigger date). This restriction is imposed by the money purchase annual allowance (MPAA), which was initially set at £10,000, but reduced to £4,000 on 6 April 2017.
The MPAA does not apply if the benefits are taken as:
- a small pots lump sum;
- a pension commencement lump sum and no income is taken; or
- the income comes from a capped draw-down arrangement.
Where the MPAA does apply, any contributions are paid into a money purchase (defined contribution) scheme after the trigger date are measured against the MPAA. Where those contributions exceed the MPAA, a tax charge will be due.
As 2017/18 is the first year for which the lower MPAA of £4000 applied, more taxpayers are likely to be caught by this tax charge. HMRC has recently set up an online tool to help you clarify whether the MPAA tax charge applies, but the accompanying explanation is not easy to follow.
Please contact our office, where we can help you clarify whether you have to pay a pensions tax charge in respect of contributions paid in 2017/18 or earlier.
Written by the Tax Advice Network