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This publication is available at https://www.gov.uk/government/publications/pension-schemes-newsletter-96-february-2018/pension-schemes-newsletter-96-february-2018
1. Scottish Budget 2017 – Taxation of Pension Income
On 14 December 2017 the Scottish Government Budget announced new Scottish Income Tax rates and bands for the 2018 to 2019 tax year, which were updated on 6 February.
These were confirmed on 20 February 2018 and will apply from 6 April 2018.
On 21 February 2018 we published the Pension schemes relief at source for Scottish Income Tax newsletter - February 2018 newsletter to clarify how the relief at source mechanism will operate in 2018 to 2019 in respect of Scottish taxpayers.
This article provides information on other pensions tax implications of the Scottish Budget 2017 for the tax year 2018 to 2019.
a. Fixed rate charges
Those pension tax charges that don’t apply at members’ marginal rate of Income Tax will continue to apply at the current rates.
For example, short service refund lump sums will continue to be taxable at 20% on the first £20,000 and 50% on amounts over £20,000.
Llifetime allowance charges for Scottish taxpayers will continue to apply at 55% if the excess is taken as a lump sum or 25% if taken as a pension.
b. Marginal rate charges
For pensions tax charges that do apply at members’ marginal rate of Income Tax, Scottish taxpayers will be liable to tax at the new Scottish Income Tax rates.
For example, annual allowance charges for 2018 to 2019 and subsequent years will apply in the usual way for Scottish taxpayers, based on Scottish Income Tax rates for the relevant year.
Pension income is taxed at the recipient’s marginal rate of Income Tax, which means that Scottish taxpayers will be liable to pay tax at the Scottish Income Tax rates.
Following the introduction of the new Scottish Income Tax rates for 2018 to 2019, Scottish taxpayers may pay a different amount of tax (which may be higher or lower) on their pension income than they did in the previous tax year.
c. Pension flexibility payments and PAYE
Normal PAYE rules will continue to apply to these payments, and where the fund is not extinguished with the first payment it will be treated as an ongoing PAYE source.
If the recipient has a P45 dated on or after 6 April in the current tax year, the scheme administrator should operate the code on the P45 on a Week 1/Month 1 basis. If the code shows that the recipient is a Scottish taxpayer, the Scottish Income Tax rates will apply.
If a scheme administrator already makes payments to the recipient, the additional pension flexibility payment should be added to the previous pension payment made in that tax period.
The tax will be then recalculated using the existing tax code used by the scheme administrator, in line with Scottish Income Tax rates where the code is a Scottish tax code. This prevents the individual from incorrectly getting the benefit of the tax allowances twice.
There’s guidance on additional payments in a tax period at paragraph 1.12 of CWG2.
In all other circumstances, including where individuals have a P45 from the previous tax year (and regardless of any notification of residency status for the purposes of Pensions Tax Relief at Source), scheme administrators should use the emergency code on a Week 1/Month 1 basis against the first payment in line with UK tax tables.
HM Revenue and Customs (HMRC) will issue a tax code to operate against future payments. The emergency code for the 2018 to 2019 tax year will be 1185L.
Where tax has been deducted using emergency code, Scottish taxpayers have 2 options. They can:
wait until after the end of the tax year, when HMRC will reconcile their account using their Scottish tax code and make any repayment owed as part of its normal PAYE process
claim tax back in year by completing form P55, P53Z or P50Z, and HMRC will calculate the overpayment based on Scottish Income Tax rates and make a refund within 30 days of receiving a repayment claim
d. Lump sum death benefits
For Scottish taxpayers who receive lump sum death benefits (other than trivial commutation lump sum death benefits) and who are liable to Income Tax at their marginal rate, pension scheme administrators will continue to deduct Income Tax under PAYE in the same way as for pension flexibility payments.
You can find more information about taxation of lump sum death benefits under PAYE in Pension schemes newsletter 73 - October 2015.
Scottish taxpayers can claim back overpayments of tax on death benefits using the appropriate form P50Z(DB), P53Z(DB) or P55(DB). HMRC will then calculate the overpayment based on Scottish Income Tax rates and will make a refund within 30 days of receiving a correct repayment claim.
You can find more information in the GOV.UK guide Tax on a private pension you inherit - GOV.UK.
2. Relief at source - annual return of individual information for 2017 to 2018 onwards
a. How to submit your annual return of individual information
As we explained in Pension Schemes Newsletter 93 you’ll no longer be able to submit your annual return of individual information by paper for the 2017 to 2018 tax year onwards.
We’ll shortly be writing to pension scheme administrators who submitted their last annual return of individual information on paper, to explain that you can’t submit a paper 2017 to 2018 return, but you’ll still be able to submit this by email, USB, CD or DVD.
However, we’d encourage you to sign up for the Secure Data Exchange Service (SDES) and use this to submit your next return. From April 2019 you’ll only be able to submit your annual return of individual information electronically SDES.
b. Structured format
In the Pension schemes relief at source for Scottish Income Tax newsletter - February 2018 newsletter we told you that from April 2018 you’ll need to submit the data on your annual return of individual information in a structured format and we gave you information about this in Appendix 3 of the February newsletter.
We’re in the process of updating the registered pension scheme electronic flat text file specifications for the annual return of individual information in line with this and we’ll let you know when we’ve published this in a future newsletter.
3. Look up residency status for relief at source
a. Access to check residency status on GOV.UK
As we explained in the Pension schemes relief at source for Scottish Income Tax newsletter - February 2018 newsletter, when the service is launched you’ll be able to it to look up the residency status of new members joining your schemes from April 2018.
You’ll also be able to use the service to look up the residency status of new members that joined in the 2017 to 2018 tax year.
During March 2018 we can give you controlled access to this service on request, before we make it fully available on GOV.UK.
If you’d like us to give you access, please send an email with ‘Residency status look up service – private beta’ in the subject line to email@example.com with:
- your name
- your company name
- your email address
- an estimate of the number of members joining your scheme(s) in 2017 to 2018 (optional)
We’d encourage you to request access to the service because this will be the only way for you to check the correct residency status for your new members before the service becomes fully available on GOV.UK.
b. Accessibility and assisted digital user research
In the Pension schemes relief at source for Scottish Income Tax newsletter - February 2018 newsletter, we explained that we’re carrying out user research during March 2018 to help us make sure the service is accessible to all scheme administrators.
If you’re a pension scheme administrator who uses assistive technologies such as an enlarged text or screen readers, or if you need additional support to use our online services, we’d like talk to you.
If you can help us with this user research please send an email with ‘Residency status look up service – user research’ in the subject line to firstname.lastname@example.org.
4. Relief at source – excess relief
In the Pension schemes relief at source for Scottish Income Tax newsletter - February 2018 newsletter, we explained that for any interim claims for tax months ending on or after 5 April 2018, the Registered Pension Schemes (Relief at Source)(Amendment) Regulations 2018 introduce a 90 day deadline for scheme administrators to give HMRC information about excess relief claimed and repay the excess relief to HMRC.
We’ve published Tell HMRC you’ve claimed too much relief at source for pension scheme members guidance which explains the new requirements in more detail.
To help you send us the right information, we’ve also published a spreadsheet that you can use to give us this information. We’ve added help text so that when you click on the column headings you’ll see more information to help you complete the spreadsheet.
We’ve also added in validation so that the greyed out cells will turn white when you’ve entered the correct information. They stay grey if the information you’ve included is incorrect or incomplete, or if you leave a mandatory cell blank.
You don’t need to include information about Scottish starter rate taxpayers who pay tax at 19% but who have received relief at source at 20% when telling us about excess relief that you’ve claimed.
We’ve amended form APSS105 to include information about the new reporting requirements on the form and landing page and we’ve also incorporated the changes to the APSS105 that we told you about in Pension Schemes Newsletter 91.
If you’re filling in the APSS105 for interim claims ending on or before 5 April 2018 you can include combined details of both UK and Scottish taxpayers in Part 2.
For interim claims from 6 April 2018 you must fill in both Parts 2 and 3.
5. New pensions online service
We’re continuing to develop our new pensions online service so that we can launch phase one of the new service in April 2018.
This initial release will be for all new pension scheme administrator registrations and all new pension scheme applications for registration (excluding retirement annuity contracts and deferred annuity contracts).
a. Updating your scheme administrator details
In previous newsletters we explained that we’ll cleanse your data before we move your scheme and administrator details across to the new service.
We asked you to log onto the pensions schemes online service as soon as possible and check that your scheme administrator details are complete and up to date. Thanks to all pension scheme administrators who’ve gone online and updated their details.
If you haven’t updated your details yet, you can find information on how to do this in section 9.11 of the pension schemes online: user guide.
If you’ve lost your log in details contact our online services helpdesk.
Practitioners who file reports and returns on behalf of scheme administrators should remind their scheme administrators to take action.
b. New pensions online service newsletter
We’re planning to publish a newsletter on the new pensions online service shortly to update you on our work and progress and provide further information about the next releases.
6. Reporting of non-taxable death benefits
In Pension Schemes Newsletter 89 we explained that we continue to work to resolve the problem of P6 tax coding notices being issued in error for death benefit payments that are entirely non-taxable.
We’re still working on a solution and we’ll provide details about how to report these payments online as soon as we can. In the meantime, you should continue to follow the guidance we gave you in Pension Schemes Newsletter 78.
We’ll keep you updated in future newsletters.