Income Tax on updated past Pension Payments

I have received notification from my Pension Provider that due to changes in legislation re: Increases in Guaranteed Minimum Pension ( GMP ) my Company pension is being increased by £ 425 for each of the Past 12 .5 years . A lump sum of £ 5337 will be paid to me during the current Tax Year . If any Income Tax is due will this apply to the individual years concerned or will I be taxed on the accumulated £ 5337 in the current Tax Year . Also does the 6 year rule apply in these cases , eg: Tax only liable for the years 2017 to 2023 ? Thank you . Posted 10 months ago by

Hi,

Have a look at the guidance below, regarding pensions paid in arrears.  

EIM75020 - The taxation of pension income: pension payments made in arrears or in advance

Where the payment of the arrears results in more tax being paid in the year of the arrears payment, than would arise in the tax years the arrears relate to, you can contact HMRC asking for the payments to be related back to the relevant years.

Thank you.

Thank you for your reply. The second part of my question was " does the 6 year rule apply in these cases , eg: Tax only liable for the years 2017 to 2023 ?" or is HMRC able to go back the full 12 or so years to calculate liability?

Hi Alvin Lee,
If it is beneficial to you to have the payments backdated, we will go back to the first year the payment refers to.
Thank you. 

Thank you but this doesn't answer my question. It is not beneficial to me to have the payments backdated for tax reasons before 2017. As part of the overall payment, will HMRC take tax from the first year part of the back payment even though that was 2010/11 or will it only take tax from 2017 as per the 6-year convention?

Bottom line - Is tax payable for the whole 13 year period the back payment pertains to or do you just take it for the last 6 or 10 years?

Hi Alvin Lee
With arrears of pay/pension requests.  
HMRC would work out how much extra tax would be due in each of the tax years that the arrears were included.  
These extra amounts of tax are then set against the overpaid tax in the year the arrears is paid.  
Any remaining overpaid tax can then be repaid to you.  
It is not always beneficial for the arreats to be dealt with in this was, so each case must be reviewed on its own merit.

Hi Alvin Lee
Yes.  
The extra tax payable over the 13 years is set against the overpaid tax in the year the arrears a paid and taxed, with the difference being repaid.