RPSM05101550 - Technical Pages: Contributions and tax relief: Member contributions: Refunds of contributions: Amount of refund of excess contributions

Amount of refund of excess contributions lump sum that may be paid

[Para 6(4) to (6) Sch 29]

The amount that may be paid as a refund of excess contributions lump sum is referred to in the legislation as the ‘available excess contributions allowance’. This allowance is the amount of ‘excess’ contributions paid in that tax year, less any earlier refund payments made (either in the same or an earlier tax year) to the member in respect of the contributions paid in that tax year from any registered pension scheme.

This is represented in the legislation by the following formula

RPC - MAR - ALS

RPC is the amount of relievable pension contributions paid by (or on behalf of) the member in the relevant tax year (other than contributions paid by an employer, or paid by HMRC to a contracted out scheme, or any contributions paid after the member has reached the age of 75).

If any tax relief given in accordance with the operation of relief at source (see RPSM05101310) in relation to any contribution included in RPC is in excess of the maximum amount of relief to which the member is entitled (see RPSM05101120), RPC is taken to be reduced by the amount of that excess.

MAR is the maximum amount of relief to which the member is entitled in that tax year.

ALS is the total value of any refund of excess contribution lump sum(s) previously paid in respect of that tax year to the member.

It may be that the rules of a registered pension scheme provide for the payment of interest on refunded contributions. If the amount of the lump sum under the scheme rules is to be determined with reference to an interest rate or investment growth, and the interest or investment growth forms part of the lump sum, it can be treated as part of a refund of excess contributions lump sum for tax purposes, to the extent that it falls within the member’s available excess contributions allowance.

In other cases, the interest may be being paid in addition to the lump sum. This may arise simply because of a delay in making the payment, or may be a payment over and above the computed lump sum for some other reason. If it qualifies to be treated as a scheme administration member payment for tax purposes (see RPSM05101560) a payment of interest in addition to the refund is an authorised payment.

In each case, it is a question of fact, based on the circumstances of the case, whether a payment is a lump sum, or comprises a lump sum plus a separate payment for interest, and it is possible that different pension schemes’ rules could lead to different results.

Example

In the tax year 2006-2007, Ian paid gross contributions of £30,000 to a registered pension scheme. However his relevant UK earnings for that tax year turned out to be £25,000. So £5,000 of those contributions did not attract tax relief.

Under the scheme rules, Ian can have a refund from the scheme.

Glossary (RPSM20000000)

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