Taxation and Retirement Annuities

A Retirement Annuity Contract (RAC) was the name given to a type of pension plan that individuals could take out before 1 July 1988, when the new style Personal Pension Plan (PPP) was introduced. These contracts were only available for self-employed people (as long as they had earnings subject to UK taxation), and to those people in employment who did not have access to an occupational scheme. After this date, no new RACs could be taken out, although if you already had one, you could continue to contribute to it.

Before 5 April 2007, unless you'd completed a form R89 (Application to Receive an Annuity Without Tax Taken Off), your retirement annuity would be paid with tax taken off at the basic rate. After this date, annuities were taxed through PAYE (Pay As You Earn), in the same way that occupational or personal pensions are taxed. This means that the amount of tax taken from your annuity will be calculated using your tax code; the total amount you pay each year will be shown in the P60 End of Year Certificate.

If you think that you've overpaid your tax, then you can ask HM Revenue & Customs (HMRC) to re-check it and possibly issue a refund through PAYE. You must make any claims for repayment within 6 tax years.