There's a newer version of that Pension guide

[webberg]

are you sure.

Someone with open year could well opt for the loan charge, offset it (fully or partially) with a pension contribution, the full loan loan charge would still count as a down payment for the open years.

This is how I understand it although i am far from an expert.

You could include the open year in the loan charge but eventually you will have to agree the liability for that year because the HMRC enquiry will not cease with the loan charge.

Therefore if that open year is agreed later, the loan is removed from the loan charge and the amount taxed in 2018/19 will reduce.

That might mean that the pension contribution is now in excess of what might be allowable and that can cause a lot of issues.

I think I would agree therefore that the pension contribution should be based on closed years being included in the loan charge and open years not.

[Iliketax]

Therefore if that open year is agreed later, the loan is removed from the loan charge and the amount taxed in 2018/19 will reduce.

That is not quite right. From a geeky perspective, the April 2019 loan charge employment income will never be removed. If we then assume that you (or the courts) agree that the open year's employment income should also be taxed then there are two lots of tax due on the same amount. The double tax relief rules recognise that by ensuring that the tax paid on the April 2019 loan charge will also count as paying the tax due on the open year. So basically the tax paid on the April 2019 counts twice (which is symmetrical with the same amount of money being taxed twice).

Then the scary bit. In a webinar specifically addressing the point, HMRC said that its view is that by claiming pension relief in 2018/19 you reduce the tax due in 2018/19 and so also reduce the tax that can also credit the open year's tax. So you are still left with a bill for the open year.

Using numbers:

No pension contributions

Loan charge £100: extra tax paid for 2018/19 (say) £40

2013/14 open year is now taxed and income was £100: extra tax to pay for 2013/14 is (say) £40.

You pay the £40 for 2018/19 in (say) January 2020 and it covers the tax bills for both 2018/19 and 2013/14. So no double tax.

With pension contributions

Loan charge £100: extra tax paid for 2018/19 would be (say) £40 but you pay £100 (gross) pension contribution so no extra tax.

2013/14 open year is now taxed and income was £100: extra tax to pay for 2013/14 is (say) £40.

You pay no tax for 2018/19. So HMRC say you still owe £40 for 2013/14.

I'm not clear that HMRC is right on that (especially if you have other income). But I would not suggest anyone makes pension contributions for open year loans without taking their own personal tax advice (as there is risk of having to make the pension contribution and pay the extra tax for the open year).

I think I would agree therefore that the pension contribution should be based on closed years being included in the loan charge and open years not.

I agree that you would be taking a big risk if you make pension contributions in respect of years that are still open.

[stonehenge]

I agree that you would be taking a big risk if you make pension contributions in respect of years that are still open.

big risk?

You really think that HMRC are going to pursue open enquiries to a conclusion? Their track record over the past 20 years suggests otherwise.

The whole point of the LC is to clear up the legacy mess and draw a line under it.

I know someone who was in a (non loan) scheme around 2003. HMRC opened an enquiry but their "investigation" has never gone anywhere.

[webberg]

big risk?

You really think that HMRC are going to pursue open enquiries to a conclusion? Their track record over the past 20 years suggests otherwise.

The whole point of the LC is to clear up the legacy mess and draw a line under it.

I know someone who was in a (non loan) scheme around 2003. HMRC opened an enquiry but their "investigation" has never gone anywhere.

Yes I do think HMRC will pursue enquiries because:

a. That is what the law requires

b. The loan charge double tax relief provisions are written on that basis.

It is a dangerous fallacy to think that HMRC inaction means the enquiry is over or never started. If you get an enquiry, YOU can drive it forward and YOU have means at hand to force HMRC to pursue it or drop it.

The fact is that HMRC like to create the impression that enquiries can be driven only by them, whereas in fact it has always been the case that it's a two way street, it's just that most taxpayers have an irrational fear of HMRC and chose to not push.

However make no mistake.

The enquiries WILL NOT CEASE, regardless of whether the loan charge survives or not.

Something to consider if any are considering one of the many "solutions" to the loan charge.

[passerby]

That might mean that the pension contribution is now in excess of what might be allowable and that can cause a lot of issues.

Thanks for the clarification.

Can I ask what big issues though?

it is something I have looked into and if your contribution exceeds your relevant income, then you can withdraw it in the next 6 years. I have checked with my Sipp provided and they certainly agree, all they need is the tax return or P60.

[stonehenge]

Yes I do think HMRC will pursue enquiries because:

a. That is what the law requires

[webberg]

Thanks for the clarification.

Can I ask what big issues though?

it is something I have looked into and if your contribution exceeds your relevant income, then you can withdraw it in the next 6 years. I have checked with my Sipp provided and they certainly agree, all they need is the tax return or P60.

You need to ask your SIPP provider whether an overpayment of a contribution will create a tax charge in that year.

You may well be able to withdraw the cash over the following years (beyond my knowledge), but usually overpayments are treated as creating a taxable liability.

[1887wwfc]

Settlement after 5th April

I am assuming that if you don't get a settlement figure before 5th April then the opportunity to use the Pension offset against LC2019 is lost?

WTT submitted my calculations in July last year and I am still awaiting HMRC settlement pack.

Also, if you decide to "settle" via the loan charge rather than CLSO2 are their any other considerations as my years are closed and the tax owed by my calculations will work out less due to a small pension income only in 2018/2019. I understand a Self-Assessment will be required but wondered are the legal terms of settlement the same?

[passerby]

I am assuming that if you don't get a settlement figure before 5th April then the opportunity to use the Pension offset against LC2019 is lost?

That how i understand it. it is very annoying as we have to make the contribution before we know if we wiil be hit with the LC or not

Also, if you decide to "settle" via the loan charge rather than CLSO2 are their any other considerations as my years are closed and the tax owed by my calculations will work out less due to a small pension income only in 2018/2019. I understand a Self-Assessment will be required but wondered are the legal terms of settlement the same?

LC is not a settlement, it is a new tax. CLSO2 is settlement to avoid the LC. If you skip CLSO2 and pay the loan charge then that is the end of the story as all your years are closed.

[webberg]

I am assuming that if you don't get a settlement figure before 5th April then the opportunity to use the Pension offset against LC2019 is lost?

WTT submitted my calculations in July last year and I am still awaiting HMRC settlement pack.

Also, if you decide to "settle" via the loan charge rather than CLSO2 are their any other considerations as my years are closed and the tax owed by my calculations will work out less due to a small pension income only in 2018/2019. I understand a Self-Assessment will be required but wondered are the legal terms of settlement the same?

If you are settling, then there is no loan charge and therefore no need to mitigate the charge with a pension contribution?

The loan charge IS NOT SETTLING.

If you have settled via the contract route, then no need to make a SA return.