2: HMRC tax regime contributions and annual and lifetime allowances

Question 1

Relevant UK earnings are

Answer 1

Employment Income,
Income from a trade, profession or vocation,
Income arising from Patent rights
Earnings from overseas crown employment that is subject to UK tax.

Question 2

Relevant UK individual is

Answer 2

Under 75,
Has relevant UK earnings,
Is UK resident for some time during the year OR
was resident in the UK: at some point during the past 5 years (max £3600 relief in that case),
They or their spouse have earnings from overseas crown employment

Question 3

Maximum tax saving on pension contributions…

Answer 3

=60%

This is becuase if someone earns between £100 and £125k, they can reinstate their Personal allowance, extend

Question 4

HMRC require certain conditions to be fulfilled for a salary sacrifice arrangement to be effective:

Answer 4

• there must be a written agreement in place between the employer and the employee to reduce the employee’s salary;
• the agreement must be in place before the salary is actually reduced;
• the reduction in salary cannot take the employee’s salary below the national minimum wage.

Question 5

HMRC will treat the entire PCLS as an unauthorized payment where all the following are met:

Answer 5

The individual receives a PCLS which, when added to any other PCLS drawn in the previous year, exceeds £7,500.
• The PCLS means that the pension contribution paid is significantly greater than it would otherwise be.
– A ‘significant increase’ is taken to be ‘more than 30% of the contributions that might otherwise have been expected’ and the cumulative sum of extra contributions exceeds 30% of the PCLS.
• The additional contributions are made by the individual or by someone else, such as an employer.
• The recycling was pre-planned.

Question 6

Tax relief for EMPLOYER contributions

Answer 6

It is paid gross, is an allowable business expense and the employer receives tax relief on corporation tax.

Contributions need to be wholly and exclusively for the business - eg not excessive for the work done.

Question 7

Employer pension spreading

Answer 7

Compare the current period contributions against the previous period contributions after any adjustment under Step 2.

There is an excess if current is greater than 2.1 times previous.

The excess is the amount in the current period less 1.1 times the amount paid in the previous period.

£500k to £1m = 2 periods
£1m - £2m = 3 periods
£2m plus = 4 periods

Question 8

Annual allowance

Answer 8

Is £40k. It tapers when ANI is over £240k by £1 for every £2 over.

Question 9

Calculate DB PIP

Answer 9

Start of period = years/total scheme year * salary then * 16 * CPI

End of period = years+1/total scheme years * salary now *16

Question 10

As well as the exclusions relating to specific types of arrangement (e.g. investment growth in respect of a defined contribution scheme) there are two other exclusions from total pension input. These are:

Answer 10

contributions and defined benefit accrual in the tax year in which the member dies; and
• contributions and defined benefit accrual in the tax year in which benefits are taken due to the member’s severe ill-health (where expectation of life is less than twelve months).

Question 11

Threashold income of £200k plus AND adjusted net income of £240k or more…

Answer 11

For every £2 of adjusted income over £240,000, the annual allowance is reduced by £1, down to a minimum of £4,000.

Question 12

Taxable pension death benefits

Answer 12

Included as taxable income…but don\t count towards threshold or adjusted net income.

Question 13

What triggers MPAA:

Answer 13

first draws funds from a flexi-access drawdown fund
• takes an UFPLS;
• notifies the scheme administrator of their intention to convert a pre-6 April 2015 capped drawdown fund to a flexi-access drawdown fund and then subsequently takes a withdrawal
• takes more than the permitted maximum for capped drawdown from a pre-6 April 2015 drawdown pension fund;
• receives a stand-alone lump sum when entitled to primary protection where the lump-sum protection exceeds £375,000;
• receives a payment from a lifetime annuity where the annual rate of payment can be decreased in other than permitted circumstances
• receives a scheme pension paid directly from the funds of a defined contribution arrangement where the arrangement is providing scheme pensions paid directly from the funds of the defined contribution scheme to fewer than eleven other members
• payment of one of the types of benefit listed above from an overseas pension scheme that has benefited from tax relief.

Question 14

MPAA is only triggered by the original member

Answer 14

If a dependant, nominee or successor takes a flexible payment from a dependant’s, nominee’s or successor’s flexi-access drawdown or annuity then the MPAA is not triggered.

Question 15

What does NOT trigger MPAA:

Answer 15

• receives a PCLS;
• receives a trivial commutation lump sum;
• receives a small pots lump sum;
• receives a payment from a scheme pension from a defined benefit arrangement;
• receives a payment from a scheme pension paid directly from the funds of a defined contribution arrangement where at least eleven other people (including dependants) are receiving a scheme pension paid directly from scheme funds;
• receives a scheme pension secured by way of an annuity from a defined contribution scheme of any size;
• is in receipt of a lifetime annuity where payments cannot go down except in prescribed circumstances;
• takes no more than the permitted maximum from a pre 6-April 2015 capped drawdown pension fund; and
• receives a payment from a dependant’s (or nominee’s or successor’s) flexi-access drawdown fund.