Since April 2007 the way you pay tax on a retirement annuity has changed. If you think you have overpaid tax there are deadlines for claiming back overpayments.
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Retirement annuities are paid out of Retirement Annuity Contracts (RAC) which were a type of pension plan that individuals could take out before 1 July 1988. After this date no new RACs could be taken out and they were replaced with personal pensions. RACs started before 1 July 1988 can carry on until the person retires.
Before 5 April 2007 all retirement annuities were paid with tax taken off at the basic Income Tax rate. If your income was low enough not to pay tax you completed a form R89 'Application to receive an annuity without tax taken off'.
On 6 April 2007 the system changed. Now all retirement annuities - except Purchased Life Annuities - are taxed through PAYE (Pay As You Earn), the same as personal or workplace pensions.
HM Revenue & Customs (HMRC) sends your annuity provider a tax code which tells them how much tax to deduct before they pay you. The tax code notice might also ask for a deduction of tax due on your State Pension if you're not already paying tax on this through other means. The tax code is based on information HMRC have about your age and overall income.
You'll receive a form P2 PAYE Coding Notice telling you what your tax code is. It's important to check it. If you think any of the information is wrong you can ask HMRC to re-check it and get a refund if you've overpaid tax. Read the related guides under 'More useful links' below to find out more.
At the end of the tax year you'll get a form P60 End of Year Certificate. This shows the amount of your annuity and the tax that's been taken off. A tax year runs from 6 April one year to 5 April the next year. Keep the P60 in a safe place in case you need to fill in a tax return or check how much tax you've paid.
If you're concerned that you've paid or are paying the wrong amount of tax on a Retirement Annuity Contract, contact HMRC.
When you call, please have the following information to hand:
If you've been paying too much tax you can claim a tax repayment for up to six tax years. However, you must claim by 31 January towards the end of the sixth tax year.
For example, if you make a claim before 31 January 2013, you'll be entitled to be repaid back to April 2007. If you make a claim on 1 February 2013, you'll miss out on any repayment due to you up to April 2007 and your claim will only go back to April 2008.
For claims for tax overpaid after April 2008 you'll get your repayment through PAYE.
For claims for tax paid before April 2008 you'll be sent a refund. Note that you may need to send your annual statements to HMRC so that they can calculate the amount that's due to you.
Purchased life annuities pay a guaranteed income for life and can be bought with money from any source, not just pension income.
If you're getting a purchased life annuity it's probably being paid to you after basic rate tax has been taken off. If you don't think you should be paying tax on it - or if you think you should be paying less tax - because you're on a low income - you can claim a refund. Follow the links to find out more.