News
The Annual Allowance and Carry Forward
14-04-2011
By making use of the carry forward rules contained in the Finance Bill 2011 individuals, or their employer on their behalf, can make fully relievable contributions of up to £200,000 in any one input period.
The carry forward rules allow an individual to utilise any unused allowances from the previous three tax years and add these to the current year’s allowance. For the purposes of the carry forward rule, the tax years 08/09, 09/10 and 10/11 each have an annual allowance of £50,000 so an individual who has made no contributions in any of those years, has a contribution allowance of 4 x £50,000.It is important to note however that:
- The individual must have been a member of a registered pension scheme in each of the tax years for which they want to carry forward unused allowance.
- Tax relief on member contributions is still limited to 100% of earnings in the year of payment so the member must have sufficient earnings to justify their contribution.
- Accruals in defined benefit arrangements must be taken into account. Administrators of DB schemes will be required to provide information to their members for the purpose of valuing DB accruals against the annual allowance.
- Extra care needs to be taken for members who have input periods that are not aligned to the tax year, particularly those that straddle the 10/11 and11/12 tax years.
Another important point is that if an individual contributed more than £50,000 in any of the 08/09, 09/10 or 10/11 tax years it does not create a negative but simply wipes out the allowance for that year. The effect of this can be illustrated in the following examples.
Contributions/accruals in Tax year 08/09 |
Contributions/accruals in Tax year 09/10 |
Contributions/accruals in Tax year 10/11 |
Maximum allowable contribution/ accrual in tax year 11/12 |
|
Example 1 |
£70,000 |
£0 |
£0 |
£150,000 |
Example 2 |
£0 |
£70,000 |
£0 |
£130,000 |
Example 3 |
£0 |
£0 |
£70,000 |
£130,000 |
Example 4 |
£0 |
£120,000 |
£0 |
£100,000 |
Example 5 |
£0 |
£0 |
£120,000 |
£80,000 |
HMRC have informed us that the carry forward rules will be monitored through the Self Assessment system and that there is no responsibility on Scheme Administrators to monitor whether individuals contributing in excess of £50,000 have unused allowances to carry forward.
News Archive
- Annual Allowance and Carry Forward - (22/08/2011)
- Taxation of Death Benefits after 6th April 2011 - (22/08/2011)
- New Retirement Options - (22/08/2011)
- Protection from the reduced Lifetime Allowance - (22/08/2011)
If you’d like more information about Westerby Trustee Services
Sales +44 (0) 116 247 0304
Administration +44 (0) 116 326 0183
Email us here
We will contact you to arrange an initial consultation.
