RPSM11105360 - Technical Pages: Lifetime allowance: Where the lifetime allowance used up: Liability in the member’s lifetime: Where lifetime allowance charge deducted incorrectly

Where a lifetime allowance charge is deducted incorrectly

[Regs 6 and 7 The Registered Pension Schemes (Accounting and Assessment) Regulations 2005 SI 2005/3454]

Where the scheme administrator treats the whole amount crystallising at a BCE as a chargeable amount because, for example, the member fails to respond to their questions, or does so simply in error, what turns out to be an excessive lifetime allowance charge may be claimed back at a later date. This can be done by submitting an amendment to any previously submitted Accounting for Tax return in which the excessive lifetime allowance charge was originally reported. The administrator should make the amended return on form APSS 302 and tick the 'Yes' box in part 1.2 of the form to indicate that it is an amended return. The amended return therefore relates to the original return for the quarter of the overpayment and not to a current return. The charge reference number used should therefore be the same as for the original AFT return.

HMRC will then make a repayment to the scheme administrator. Any repayment carries repayment interest from the later of the due date or the date of payment.

[Para 1(6) Schedule 29 & The Registered Pension Schemes (Meaning of Pension Commencement Lump Sum) Regulations 2006 – SI 2006/135 – as amended by SI 2007/3533]

The scheme administrator may use part or all of the refund to pay a further lump sum. If the scheme administrator pays the lump sum within 12 months of the day it receives the refund of the overpaid lifetime allowance charge from HMRC, it can be treated as a pension commencement lump sum for tax purposes.

The lump sum can be treated as a pension commencement lump sum in these circumstances even if the payment is made outside the normal period for a pension commencement lump sum, that is the 18-month period starting 6 months before and ending 12 months after the entitlement arises to the connected pension / lifetime annuity / unsecured pension. The other pension commencement lump sum conditions must of course also be satisfied; e.g. there is a maximum amount that can be treated as a pension commencement lump sum (see RPSM09104200).