Retirement Annuities - deduction of tax
January 2007
HMRC have issued detailed notes on the change in the way retirement annuities will be taxed from April 2007. We have outlined below how tax is currently collected, and the change to be introduced from April 2007.
The current system
At present recipients of retirement annuities will receive payment either gross, with no deduction of tax, or less tax at the standard rate. To receive the annuity with no tax stopped you may have filled in a form in the past certifying that you are not liable to pay tax on all your income.
The new system from April 2007
From this date retirement annuities will be classed as pensionable earnings and subject to PAYE. Basically HMRC will be collecting information about all your earnings and using this data to ensure that the retirement annuity is subject to the correct deduction of tax. The manager of your retirement annuity payments will automatically apply a notice of coding to your annuity and stop the tax for you, in much the same way that an employer deducts tax from salaries and wages.
Tax Planning Tips
- Tax paid at basic rate - if you have previously had basic rate tax deducted and some or all of an annuity should have been taxed at lower rates or no tax deducted, you may be able to claim a tax refund. It will only be available for in-date years.
- No tax deducted - it is possible that since you made a declaration to the Revenue that your earnings should not be taxed, your income may have increased and for a number of years you should possibly have paid tax. If during the conversion process it becomes evident to the Revenue that you should indeed have paid tax in earlier years, they have stated that they will not necessarily seek to collect these arrears. The published note states:
"..we will not be taking any action to recover any tax arrears. The only exception will be in very serious cases where we find that false statements or Returns have been made to deliberately avoid paying the tax due."
