Pension Savings Statement

Annual Allowance
Tax Charge

River Cam, Cambridge

If you have exceeded your Annual Allowance you are required to pay tax on the excess at your marginal tax rate (the highest rate at which you have paid income tax during the 2020/21 tax year). This additional tax payment is referred to as an Annual Allowance tax charge.

To calculate your Annual Allowance tax charge simply multiply the amount you have exceeded your Annual Allowance by your marginal tax rate.

In the previous examples:

Alex was liable for a tax charge on £5,573. His tax rate is 45%, so his Annual Allowance tax charge amounts to £5,573 x 45% = £2,508.

Jordan was liable for a tax charge on £7,286. Her tax rate is 45%, so her Annual Allowance tax charge amounts to £7,286 x 45% = £3,279.

Sam was liable for a tax charge on £6,000. His tax rate is 40%, so his Annual Allowance tax charge amounts to £6,000 x 40% = £2,400.

How to pay your Annual Allowance tax charge

You can pay this directly to Her Majesty’s Revenue & Customs (HMRC) via their website.

Alternatively, if the amount of your Annual Allowance tax charge is £2,000 or more and has resulted from an increase in your Plan benefits, you can ask the Trustee to pay the charge on your behalf from your benefits in the Plan. This process is called Scheme Pays.

  • How Scheme Pays works

    Under Scheme Pays, you agree to give up some of the benefits you have built up within the Plan and in exchange the Trustee will pay the Annual Allowance tax charge on your behalf.

  • Applying for Scheme Pays

    If you are a member of a defined contribution (DC) section:

    If you are interested in paying your Annual Allowance tax charge using Scheme Pays, please complete and submit the Scheme Pays application form.

    To complete the Scheme Pays application form, you will need to know the following:

    Your Threshold Income for the 2020/21 tax yearYou can read about how to work this out here
    Your Annual Allowance for the 2020/21 tax yearOur examples may help you work this out
    Your Pension Input Amount for the 2020/21 tax yearYou can find this on your pension savings statement – View preview image
    Any unused Carry ForwardOur examples may help you work this out

    By submitting the Scheme Pays application form you are confirming to the Trustee that you wish to use Scheme Pays to settle your Annual Allowance tax charge, and that your Plan benefit should be reduced accordingly.

    The deadline for submitting your Scheme Pays application form is 10 December 2021.

    Please note if you do not submit your Scheme Pays application form by this date, you will not be able to pay your Annual Allowance tax charge via Scheme Pays. This means that:

    • you will be responsible for paying your Annual Allowance tax charge before the 31 January 2022 deadline
    • you may be liable to pay an additional penalty to HMRC for late payment if you miss this deadline.

    You will have to submit your Self Assessment tax return to HMRC by 31 January 2022, regardless of whether you use Scheme Pays or settle the tax charge directly with HMRC.

    If you are a member of a defined benefit (DB) section:

    If you are interested in paying your Annual Allowance charge using Scheme Pays, please request a quotation showing how much of your Plan pension you will be giving up.

    You can do this by completing the Scheme Pays quote request, here.

    To complete the Scheme Pays quote request, you will need to know the following:

    Your Threshold Income for the 2020/21 tax yearYou can read about how to work this out here
    Your Annual Allowance for the 2020/21 tax yearOur examples may help you work this out
    Your Pension Input Amount for the 2020/21 tax yearYou can find this on your pension savings statement – View preview image
    Any unused Carry ForwardOur examples may help you work this out

    The deadline for requesting a quotation is 15 October 2021.

    Complete the Scheme Pays quote request form.

    We will then send you confirmation of how much pension you will be giving up along with the Scheme Pays letter which will confirm the Annual Allowance tax charge you are asking the Trustee to pay on your behalf.

    By signing and completing the nomination form you are confirming to the Trustee that you wish to use Scheme Pays to settle your Annual Allowance tax charge, and that your Plan benefit should be reduced accordingly.

    The deadline for us receiving your signed nomination form is 10 December 2021.

    Please note if we receive your nomination form after this date, you will not be able to pay your Annual Allowance tax charge via Scheme Pays. This means that:

    • you will be responsible for paying your Annual Allowance tax charge before the 31 January 2022 deadline
    • you may be liable to pay an additional penalty to HMRC for late payment if you miss this deadline.

    Whether you use Scheme Pays or not, you still have to submit your Self Assessment Tax return to HMRC by 31 January 2022.


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