Guidance

Newsletter 166 — January 2025

Published 22 January 2025

Inheritance tax on pensions consultation

In pension schemes newsletter 164 we explained that in Autumn Budget 2024, the government announced that unused pension funds and death benefits payable from a pension will form part of a person’s estate for Inheritance Tax (IHT) purposes from 6 April 2027. As part of this change, the government proposed that pension scheme administrators will become liable for reporting and paying any IHT due on unused pension funds and death benefits.

A technical consultation was launched, seeking views on the processes and information reporting requirements required to implement this change. This consultation closes on 22 January 2024.

We would like to thank those that have responded so far and those who have attended workshops to talk to us about the proposal. We are now reviewing the issues and views expressed in the responses and we will publish both a formal response and draft legislation later in the year.

We will keep you updated on our progress in future newsletters.

Tax codes for pensions

Helping customers get on the right pension pay faster

From April 2025 we are improving how tax code information is used for those people who are new to receiving a private pension, so they pay the right amount of tax from the outset. We will automatically update the tax code for customers who are on a temporary tax code and would benefit from being on a cumulative code — this means they’ll avoid an overpayment or underpayment at the end of the year. There is no need to contact HMRC and once a tax code has been changed we’ll inform customers by letter or digitally if they’ve signed up for paperless in the HMRC app or online.

You do not need to make any changes to your tax coding process as we will automatically change these codes. However, as we’re systematically changing the tax codes for these customers you will receive notices for tax codes that have been automatically adjusted as they happen. As well as benefiting customers who will receive the right pension pay quicker, you may also see a reduction in queries you receive on tax code errors.

This small change is part of our wider commitment towards improving our customer service experience.

Pension scheme return

With just over 2 months to go until the release of the pension scheme return (PSR) on the Managing pension schemes service (MPS), we are taking this opportunity to remind you how you can prepare for the new 2024 to 2025 pension scheme return.

From April 2025, you will need to submit any pension scheme returns for the tax year 2024 to 2025 onwards on the MPS service. You will not be able to file a PSR for the 2024 to 2025 tax year onwards on the Pension schemes online service.

If you have not already, you will need to enrol onto the MPS service and migrate your pension schemes.

If you need to submit a new return or amend a previously submitted return for the tax year 2023 to 2024 or earlier, you can continue to do this on the Pension schemes online service. However, you’ll no longer be able to submit any PSR (including any amendments) for any period using third party software. You’ll need to compile and submit the return directly on the relevant service.

HMRC will send you a notice to file 2024 to 2025 returns for schemes on the Managing pension schemes service. The notice to file will state the deadline for submitting your PSR.

We will ask for more information than we used to for pension scheme returns completed on the Pension schemes online service. Depending on the size of the scheme, different information will be required as part of the return.

For a pension scheme that requires a standard PSR, a full return (including members’ details) will only be required for schemes with less than 100 members, although most schemes will need to provide designatory details. You will be able to enter these details directly on to the system, and you will also have the option to bulk upload the member details by CSV file.

For a pension scheme that requires a self-invested personal pension (SIPP) PSR you will be required to upload the required member and asset type information by CSV file only.

If you would like to receive a copy of the CSV File templates for the PSR before the April 2025 launch date email administrationpensions@hmrc.gov.uk with the subject line ‘PSR CSV File Templates’ and indicate whether you require the templates for the standard PSR, the SIPP PSR or both. We will issue the templates to you as soon as possible.

To help you prepare for the PSR being available on MPS, you can read further guidance on the changes at pension scheme return for pension scheme administrators.

Relief at source

Notification of residency status report for 2025 to 2026

On 20 January 2025, we started issuing January 2025 notification of residency status reports.

You should have received an email and a reminder when your file was available for you to download. As explained in the email, you have 6 days (144 hours starting from when we made the report available to you) to download your file.

Email reliefatsource.administration@hmrc.gov.uk and put ‘Relief at source — January 2025 residency report’ in the subject line if you:

• do not receive your report and you submitted your annual return of information for the previous tax year
• have questions about the data within your report

If you do not receive a notification of residency status report

If you do not receive a residency report in January 2025, you can check your members’ residency status for relief at source. You can check the residency tax status for single or multiple members or default to the UK basic rate for your members.

You should also use this service to check a member’s residency status if they:

• do not appear on your notification of residency status report
• are unmatched

Use the rest of UK residency status if:

• you cannot check a member’s status before you apply for relief at source for them
• they do not appear on either the residency report or the look up service

You must not apply a tax rate based on the member’s address.

Once you have used a residency status to claim relief at source for a member, you must use this for the whole of the tax year, even if their residency status changes.

Lifetime allowance protections and enhancements

This is a reminder that, as a result of the abolition of the lifetime allowance from April 2024, deadlines have now been applied to certain lifetime allowance protections.

Fixed protection 2016 and individual protection 2016

The application deadline for both fixed protection 2016 and individual protection 2016 is now 5 April 2025.

After this date, individuals will not be able to apply for either of these protections.

If needed, individuals can apply for either or both of these protections before the deadline online.

This service will be updated from 6 April 2025.

International enhancements

Overseas individuals with accrual under a registered pension scheme, or transfers from a recognised overseas pension scheme, who want to apply for international enhancements, must do so by 5 April 2025.

The deadline for an application is the earlier of:

• 31 January following the end of the tax year, 5 years after the end of the tax year in which the accrual period ends, or in which the recognised overseas scheme transfer took place
• 5 April 2025

The latest date of the period of overseas membership or date of transfer is 5 April 2024, as the lifetime allowance was abolished from 6 April 2024.

Pension credit enhancements

Individuals who want to apply for pension credit enhancements from previously crystallised rights must do so by 5 April 2025.

The deadline is the earlier of:

• 31 January following the end of the tax year, 5 years after the end of the tax year in which they legally became entitled to the pension credit
• 5 April 2025

The date of the pension sharing order cannot be any later than 5 April 2024, as the lifetime allowance was abolished from 6 April 2024.

Application deadlines can be found at Finance Bill 2023-24  — Paragraph 94, within part 4, schedule 9.

Enhanced protection look-up service

In late 2025, we will be moving the current protection look-up service into the Managing pension schemes service.

The updated service will allow us to provide additional information to registered pension scheme administrators and practitioners, when checking whether the protection or enhancement that a member is relying on, for a higher lump sum allowance or lump sum and death benefit allowance, is valid.

Low earners anomaly — payment update

In Newsletter 134 we announced a top-up payment that HMRC will make to individuals affected by the low earners anomaly.

The government remains committed to this policy which will see approximately one million individuals in net pay schemes offered an annual payment of around £70.

The government will legislate to provide that the top-up payment will not impact benefit entitlement or national insurance.

Top-up payments for individuals will still be made for the 2024 to 2025 tax year and subsequent years, but the payments for 2024 to 2025 are likely to be offered later than planned — in 2026.

We expect the impact on pension scheme administrators to be minimal as we’ll contact and pay eligible individuals directly, and communications issued will make this clear.

Public service pensions remedy

Submitting a Self Assessment (SA) return for the 2023 to 2024 tax year

We are aware that some public service pension schemes may issue pension savings statements (PSS) for 2023 to 2024 late, and not before the SA deadline of 31 January 2025. This means that some members will not have been provided their pension input amount by their scheme when they come to complete their SA return.

Members in this situation should complete their SA return as normal, using a provisional figure. This provisional figure should be calculated to the best of their ability and there will not be a penalty if the figure is incorrect.

If a member submits their tax return with a provisional figure by the 31 January 2025 deadline then they will not receive a late filing penalty.

There is further guidance about how to estimate a provisional tax charge in the SA manual.

When members receive their PSS, they should update their return with the actual figure — this needs to be done within a year of 31 January 2025 deadline.

If the actual figure is higher than the provisional figure provided, then interest will be due on the difference if the member has paid the tax charge themselves rather than using mandatory scheme pays. If the member is paying the charge themselves they should also pay any additional tax liability by the due date, which will be communicated once the return is updated, to avoid late payment penalty.

There is further guidance about amending your SA return on Self Assessment tax returns: If you need to change your return.

The annual allowance increased to £60,000 in 2023 to 2024. This will mean that many members who previously incurred a tax charge will not have one in 2023 to 2024.

If a member has reasonable grounds to think they have not breached the £60,000 standard annual allowance, they may decide not submit an SA return by the 31 January 2025 deadline. When they receive their delayed PSS for 2023 to 2024, if it shows they do have an annual allowance charge, they may be charged an automatic penalty. In such circumstances, members will need to appeal the penalty and HMRC will accept the delay in issuing the 2023 to 2024 pension savings statements represents a reasonable excuse.      

If a member only completes an SA return because of their pension tax liability and they have reasonable grounds to think they have not breached the £60,000 standard annual allowance in 2023 to 2024, they should inform HMRC that they no longer need to submit a return. Information on how to do that can be found on Self Assessment tax returns: If you no longer need to send a return.

Pension flexibility statistics

HMRC can now give more information on the number of tax repayment claim forms processed for pension flexibility payments.

From 1 October 2024 to 31 December 2024, we processed:

• P55 — 8,523 forms
• P53Z — 4,760 forms
• P50Z — 1,329 forms

Total value repaid: £49,514,458

The tax repayment figures for the period 1 January 2025 to 31 March 2025 will be published in pensions schemes newsletter ― April 2025.