Where a member has paid
relievable pension contributions in a tax year of
more than the maximum amount that can receive tax relief the
legislation allows the amount of contributions that cannot receive
tax relief (the excess) to be repaid to the member.
The relievable pension contributions made in a tax year are
tax relievable (whether through the net pay arrangement or through
relief at source) provided they do not exceed the
individual’s relevant UK earnings (or, if lower and using the
relief at source provisions, £3,600).
RPSM05101120 explains what the
annual limit on tax relief on member contributions is.
Where relievable pension contributions are paid that exceed
the relievable amount, the excess can be refunded. The legislation
refers to this as the ‘excess contributions condition’.
If this condition is met, the excess contributions can be paid to
the member as a
refund of excess contributions lump sum.
The payment of a refund of excess contributions lump sum must
be made before the end of the period of six years following the end
of the tax year in which the ‘excess contributions
condition’ was met, i.e. the tax year in which the excess
contribution was paid.
The legislation is very specific in measuring the amount that
may be paid as a refund of excess contributions lump sum. This 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.
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.
The maximum amount which can be treated as a refund of excess
contributions lump sum is restricted to an amount equal to the
amount of the excess contributions made to the scheme on the basis
described above.
RPSM09104830 gives more information
on the situation if interest is paid on a refund of excess
contribution lump sum.
| Glossary ( RPSM20000000) |
