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bigduckontax, Accountant
Category: Tax
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I am filling out my UK tax return. i am a 40% paye tax payer

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i am filling out my UK tax return. i am a 40% paye tax payer earning 108k. i had an old redundant pension plan from previous employment that was 17k. i was given the option of transferring it to a new pension or cashing it in. stupidly i cashed it in. on the 17k i paid 2.5k tax at source. the tax man now wants an additional 5.5k. how can i bring down this amount? or can i go back and transfer this amount to a pension pot to pay no tax. thanks
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. You are in trouble, the 14/15 tax year is long concluded so making a contribution to a pension fund would be allowable in the current year, not the previous so your proposed escape route will not work. The tax man's demand appear a tad high. A 17K pension liberation, assuming you are over 55, would be 25% tax free leaving 12.75K exposed to tax at your marginal rate. Assuming that your 108K annual Income is gross you must add a further 12.75K making a gross of 120.75K. As you are over 100K of income you loose your personal allowance at the rate of a quid for every two pounds over 100K. This will all but eliminate your personal allowance and the tax on 12.75K @ 40% would be of the order of 5.1 making HMRC's demand for 5.5K a tad over the top. 5.1 - 2.5 [already paid] leaves a bill of 2.6K. You should write a letter to make an appeal against this demand pointing out the real position. I do hope that you find my reply of assistance.
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Customer: replied 2 years ago.
im not over 55... im 48 so i assume that makes my position even more fragile. ?!
It does indeed, the rate of tax should be at 55% on your liberated pension pot.
I would be inclined to emulate Brer Fox, for he lay low and say nuffin; just pay up. Be prepared for HMRC to wake up one day though.
Thank you for your support.