2 - HMRC Tax Regime: Contributions and allowances

Question 1

What is relevant UK earnings
4

Answer 1

Employment Income (Salary, wages)
Income derived from carrying exercise of trade
Income arising from patent rights and treated as erned income
General earnings from overseas crown employment- subject to UK tax

Question 2

What is the max age for pension tax relief on contributions

Answer 2

75

Question 3

Can you pay into someone elses pension for contribution

Answer 3

Yes but income will be based on members not person who is contributing
If income is not enough e.g. child (limited to £3,600 - no relevant earnings)

Question 4

What is net pay?

Answer 4

Employee contribution is taken away before any tax.

They contribute “net” of tax. Before Tax. So they will reduce their income by the contribution.

So if they are higher rate tax bracket (40%) - they will save 40% tax.

Question 5

What is relief of source method

Answer 5

Contributions are paid net of basic rate of tax.

Employee wants to make gross cont of £100. £80 is deduced of employee net pay (after tax and NICs) - then pension provider reclaims £20 (20% from HMRC).

If higher/additional - further 20% or 25%

Question 6

What self-assessment how is additional relief calculated

Answer 6

Adding gross amount of contribution to employee basic rate and higher rate band.

Question 7

How are contributions to personal/stakeholder pensions (including group arrangements) received

Answer 7

Relief at source method

Question 8

What is the dates that tax have to be paid under self-assessment

Answer 8

31st January during current tax year - 50%
31st July following end of tax year (i.e. 31/07/2024 - on 2023/2024 tax year) - 50%
Balancing payment on 31st January following end of tax year (31/01/2025 - 2023/2024)

Question 9

What are some benefits of Salary sacrifice

Answer 9

Employer may contribute NIC
Dont use as part of new pensions cheme - reduction in home pay less than amount in contribution

Question 10

How is an employer contribution paid

Answer 10

Gross and alllowable as business expense - so relief against corporation tax/income tax

Question 11

When is employer contribution spread over years for tax relief

Answer 11

Exceeds 210% of contribution paid in previous chargeable period
Amount of excess is and above 110% is £500,000 or more

Question 12

What is spreading of tax relief
(Time periods)

Answer 12

500k-999k (2 accounting periods)
1mil -> 1.999 mil (3 accounting periods)
2mil + - 4 accounting periods

Question 13

What is Annual allowance

Answer 13

£60k

Question 14

What is MPAA

Answer 14

£10K

Question 15

When is Pension Input period?

Answer 15

In line with Tax year
6th April -> 5th April

Question 16

What elements are not included in pension input amount

Answer 16

Investment income/returns
Contributions paid by individual/ someone other than individual employer after individual reaches 75

Question 17

What is a cash balance scheme

Answer 17

Mix of DB and DC scheme
- Promised lump-sum payment at specific age, they take PCLS and rest is providing income

Question 18

How is Total Pension input of DB/Cash balance scheme calculated

Answer 18

1. Value of member pension benefits calculated “Opening Pension input value”
2. Opening pension input value multiplied by 16
   - If including lump sum in addition to pension. Ignore Lump Sum in multiplying process
3. Then mulitply by increase in CPI for Sept before Tax year
4. Closing pension input value is then calculated
5. Multiply Closing pension input value by 16
6. Difference between two figures is total pension input

Question 19

Who does the taper allowance affect

Answer 19

Threshold income (Excluding pension contributions) over £200,000
Adjusted income (inclding employer/employee cont) over £260k

Annual allowance is reduced by £1 for every £2 of adjusted income above £260k
Max reduction is £50k so everyone should have min of £10k annual allowance

Question 20

How is threshold income calculated

Answer 20

Gross Taxable Income
Less
Gross member cont (net pay/relief at source or paid by third party - not employer)
plus
Income givern up via salary exchange or flexible remuneration after 08/07/2015
Less
Tax lump sum death benefits receive

If greater than 200k then calculate adjusted income
If not - no need to calculate adjusted income

Question 21

How is adjusted income calculated

Answer 21

Gross Taxable income
Plus
Any employer contributions
Less
Any taxed lump sum death benefits

If greater than 260k, annual allowance is tapered
If less than 260k, no tapering required

Question 22

What is the defintiion of member to carry forward unused allowance

Answer 22

Active
Pensioner
Deferred
Pension credit

Question 23

How long can you carry forward unused allowance

Answer 23

Previous three tax years

Question 24

What triggers MPAA

Answer 24

First draws funds from Flex-access drawdown fund
Takes an UFPLS

Question 25

What does not trigger MPAA

Answer 25

Receiving PCLS Receive a trivial commutation lump sum Receives a small pot lump sum Receives a payment from scheme pension from DB arrangement Receive payment from scheme pension paid directly from funds of defined contribution arrangements Receives a payment from dependent flex-acess darwdown fund

Question 26

What is an alternative allowance

Answer 26

Can only be used for pension input for DB schemes/Cash balance schemes

Question 27

Can you carry forward MPAA

Answer 27

NO

Question 28

What is annual allowance charge

Answer 28

Tax that is levied on pension scheme mebmer - paid on self-assessment Conditions - to get scheme pays - annual charge liability for tax year exceeds £2000 - Total amount of members pension savings in pension cheme for same tax year has exceeded annual allowance of 60k

Question 29

When can members have LTA protection for higher PCLS

Answer 29

If protection is made or applied before 15/03/2023

Question 30

When is the PCLS taken for LTA protection

Answer 30

Value at 05/04/2023

Question 31

What is LTA before 2024/2025

Answer 31

£1,073,100

Question 32

What is BCE

Answer 32

Benefit Crystallisation event

Question 33

What are the methods of taking an income in retirement include

Answer 33

A scheme pension A lifetime annuity A drawdown pension An uncrystallised funds pension lump sum (UFPLS)

Question 34

How many BCES are there

Answer 34

13

Question 35

# Valuation of BCEs Drawdown pension

Answer 35

Valuation: Market value of fund

Question 36

# Valuation of BCEs Entitlement to a scheme pension

Answer 36

Scheme pension x 20

Question 37

# Valuation of BCEs Excessive increase to scheme pension in payment

Answer 37

Additional increase x 20

Question 38

# Valuation of BCEs Purchase of lifetime annuity

Answer 38

Uncrystallised funds: Market value of fund used to purchase lifetime annuity Funds previously crystallised into drawdown: Market value of member drawdown fund used to purchase the lifetime annuity less the market value of the fund designated for drawdown pension at outset

Question 39

# Valuation of BCEs Defined benefit test at 75

Answer 39

Scheme pension x 20 plus the amount of the lump sum

Question 40

# Valuation of BCEs Test at 75 for drawdown pension

Answer 40

Market value of members drawdown pension at age 75 less market value of that designated for drawdown pension at outset

Question 41

# Valuation of BCEs Test at age 75 for uncrystallised defined contribution funds

Answer 41

The amount of any remaining unused funds

Question 42

# Valuation of BCEs Unused uncrystallised funds designated for drawdown following the members death

Answer 42

Market value of the assets designated as available for drawdown

Question 43

# Valuation of BCEs Unused crystallised funds used to purchase an annuity following members death

Answer 43

Market value of the assets used to purchase annuity

Question 44

# Valuation of BCEs Relevant Lump sums

Answer 44

Amount of lump sum

Question 45

# Valuation of BCEs Relevant lump sum death benefits

Answer 45

Amount of lump-sum death benefits

Question 46

# Valuation of BCEs Transfers overseas

Answer 46

The amount of transfer value

Question 47

# Valuation of BCEs Prescribed events

Answer 47

The amount prescribed in the regulations

Question 48

What was the lifetime allowance tax charge before 2023/2024

Answer 48

55% where excess above taken as lump sum 25% if taken as income

Question 49

How should BCE be expressed in decimals

Answer 49

if 66.6666% it is 66.66% not 66.67%

Question 50

How to calculate available lfietime allowance

Answer 50

%of Lifetime used then. Multiply % by now Lifetime allowance

Question 51

What happens if benefits started before A day

Answer 51

25:1 valuation. 10k of annuity valued at 250k

Question 52

Pensions credit effected before 6 April 2006

Answer 52

IAPC/ SLA IAPC is the amount of pension credit awarded increase by RPI SLA- standard lifetime allowance for tax year 2006/2007