Skip to main content

This is a new service – your feedback will help us to improve it.

Posted Wed, 09 Jun 2021 07:58:36 GMT by Simon Cook
I have a client who has taken a Pension Compensation as he was misadvised to leave a Company Pension Scheme and transfer his fund into a Private Pension Scheme. The Pension Ombudsman has ruled that this was bad advice and instructed the Pension Administrators to correct the situation. He has had a sizeable amount of money as compensation (over £100,000), with no interest. Tax at a notional 15% has been taken and appears to be on the basis that the first 25% of the compensation is tax free and the balancing 75% is taxed. This leaves him with a sizeable tax bill as it puts him into the 40% tax bracket when added to his self-employment. Having taken a lot of advice from Financial Advisers, he is getting conflicting information about the tax position - some feel it is compensation and not taxable and some are telling him that it is taxable. I've searched through all my tax books and guidance but cannot find anything about it and in 30 years of working Practice have never come across this one, so wondered what is correct. Thank you in advance for the help.
Posted Wed, 09 Jun 2021 11:36:47 GMT by HMRC Admin 18
Hi,

There is information regarding mis-sold pensions, I have attached links below: 

Savings and Investment Manual      

Capital Gains Manual

Capital Gains Manual

If you still need advice after reading the attachments, you may wish to contact a Taxes Inspector to discuss your client's records at the link below:

Self Assessment: general enquiries

Thank you. 
Posted Mon, 13 Jun 2022 16:00:53 GMT by A W
Hello Simon, I am interested to hear how this was resolved for your client. Would it be possible for you to briefly cover off the solution, please? If possible to cover: - was the 15% (tax reduction) actually paid in tax by the Pension Administrators or was it simply a case of just a reduction made in the amount received by your client? - how the higher rate tax bracket /potential extra tax bill was resolved for your client? Thank you so much in anticipation
Posted Thu, 18 Aug 2022 16:19:54 GMT by Gavin Clark
In accordance with HMRC manual, SAIM2075 reference CG13020 and CG13021, if you meet these conditions, your redress payment will be exempt from both income tax and capital gains. As the redress payment is not liable to income tax, it is not required to be shown on your tax return if you normally complete one. The 25% deduction which is tax free is treated as your normal tax free allowance that would apply when withdrawing from a normal pension, the remainder is the tax relief which was already applied being reclaimed. Hope this helps you and any future people who are not sure where to start.

You must be signed in to post in this forum.