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Where Taxpayers and Advisers Meet

Mystery tax due on pension lump sum payment - how do I contest it?

sharpener
Posts:80
Joined:Wed Aug 06, 2008 3:34 pm
Mystery tax due on pension lump sum payment - how do I contest it?

Postby sharpener » Mon Jan 13, 2025 2:30 pm

In March 2023 I took out the maximum possible remaining tax free lump sum from my SIPP which amounted to some £62,500. At the same time the pension provider (AJ Bell) calculated there was ~£40k due in tax due on the enforced crystallisation of the remaining funds that was due on my 75th birthday and deducted this. As far as I knew this settled all the tax liability. (It arose bc my occupational pensions had resulted in a notional capital sum which had eroded my LTA so the total used was 110% of my (protected) limit of £1.5M).

But now I have had from HMRC a Self Assessment Calculation showing a further £47610.00 due by 31 January 2025 in respect of FY 23/24) PLUS a payment on account for 24/25 of a further £24k. The narrative entry for this says "Total pension savings charges (£87,285.00 minus tax treated as paid £39675.00".

I think they may be under the impression the PCLS was the first of a continuing series of taxable payments. How do I go about contesting this and is it better to pay the sums demanded in the mean time?

All help and advice gratefully received!

someone
Posts:747
Joined:Mon Feb 13, 2017 10:09 am

Re: Mystery tax due on pension lump sum payment - how do I contest it?

Postby someone » Tue Jan 14, 2025 3:07 pm

I'm not 100% clear what you're saying.

Is HMRC saying you have to pay 87K TOTAL (including tax already paid) in Jan or 111K?

Assuming it's 87K then I think HMRC have done something like this:
40K (As per what AJBell calculated)
24K (payment on account - comment below)
25K (40% tax on the 62K tax free amount)
(Total 89K - which is close enough to 87285 for government work)

The 24K payment on account you can reduce on your tax return (assuming you've done one - otherwise I guess you have to call them but some of the accountants on here will be able to confirm)

The 25K tax on the tax free amount - if you've done a tax return then I think it means you've put this amount in the wrong box. If it's AJBell reporting to HMRC then either they or HMRC have got it wrong (assuming that it really was tax free) - sorry don't know what "wrong box" you've done, again hopefully one of the accountants on this site will be able to guess)

The 40K is the tax you're already paid and expected.

If it's 111K Total then I've got no idea. It's almost like they've double counted the 40K due to the enforced crystalization.

sharpener
Posts:80
Joined:Wed Aug 06, 2008 3:34 pm

Re: Mystery tax due on pension lump sum payment - how do I contest it?

Postby sharpener » Wed Jan 15, 2025 11:50 am

Thanks for that.

Total they are expecting me to pay is indeed some £111k made up as follows:

  • £39765 on 75th birthday xtallisation for exceeding the LTA - already paid, this was 25% of the excess so is probably correct
  • £47610.00 due by 31 January 2025 in respect of FY 23/24 - no idea, maybe they incorrectly think there is ongoing pension income in that year (there isn't)
  • a payment on account for 24/25 of a further £24k - which is half the £47610 so a plausile continuation of the same error.


Am trying to get sight of what AJBell actually sent to HMRC in case it is their error in which case it is for them to correct it.

Meantime is is better to pay the demanded sum to avoid penalties, or is there some way of contesting the demand and so stopping the clock? Letter/phone call/email?

someone
Posts:747
Joined:Mon Feb 13, 2017 10:09 am

Re: Mystery tax due on pension lump sum payment - how do I contest it?

Postby someone » Wed Jan 15, 2025 1:52 pm

Do you have to do a tax return? Did you have income in 2022/23 that incurred a tax bill of c 47K?

If you have no income in 2023/24 (this is April23-March24 so we're well past it) then I'd recommend calling them and telling them that. Sounds like they've estimated c150K of income in 2023/24. Does that sound similar to 2022/23?

I'm slightly surprised that they haven't asked you to do a tax return on that sort of income.

Sorry, I really don't know whether it's better to pay and then get it back or to not pay. The problem with not pay is that it will trigger penalties and interest and there's probably some rule somewhere that if you owe even as much as 1p then the penalties won't be cancelled even if the interest will be. it's crap, but there are countless cases of people who don't earn enough to pay tax being fined 1600 for not submitting a tax return (that they (incorrectly) thought wasn't needed because no tax was due).

The payments on account you can definitely get removed. If you do a tax return then there's a box to tick to say you want to reduce your payments on account (and then you have to enter how much they should be - 0 in your case). If you don't do a tax return then you'll have to call them to get this done.

Unfortunately for you, this is the busy season for accountants, so you're probably not going to get much help from the professionals until February.

If you're absolutely sure that no tax (other than the tax you've already paid) is due then I might be inclined to just pay 1K (to guarantee that there's a refund due). But you definitely need to call them/submit a tax return too. If you cannot get through (because of the time of year) then it could be complicated but I think provided you've paid all the tax due by 1st Jan 2025 then penalties and interest will be waived eventually.

And if they have asked for a tax return and you haven't done it because you thought it wasn't necessary because you didn't have any tax to pay then get on top of that - it must be submitted by 31st Jan. (If they haven't asked for one but change their mind after you call them then I think you'll get 3 months to do it).

AIUI, the trick to getting through to them is to phone such that you time it to get into the queue at the moment the lines open. Ring too early and you'll be disconnected after listening to lots of useless guff about how you can do it online, ring too late and you'll have all 40 million taxpayers in the queue in front of you. And there's 35 nanoseconds separating those two times (I exaggerate slightly...).

sharpener
Posts:80
Joined:Wed Aug 06, 2008 3:34 pm

Re: Mystery tax due on pension lump sum payment - how do I contest it?

Postby sharpener » Fri Jan 17, 2025 12:36 am

Thanks. Have done SA returns for years.

I didn't think the tax-free lump sum was income but treated as return of capital, it is not on the P60 so not on TR either.

Have now completed an SA303 to get POA reduced at least, thanks for tip.

Waiting on AJB who have promised to send me copy documentation by end of week, we shall see...


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