Carry forward rule amendment could allow for greater contributions
01/12/2011
Carry forward contributions that were in excess of the deemed £50,000 Annual Allowance during the tax years 2008-09, 2009-10 and 2010-11, will now be ignored when calculating carry forward, as a result of the HMRC announcement on Friday 25 November 2011.
Companies, high earning individuals, or self employed individuals making a large profit, could now make additional pension contributions following these recalculations.
HMRC has also clarified that to make use of the carry forward facility the member must be either an active member, a pensioner member, a deferred member or a pension credit member of a pension scheme.
This amendment only applies for the three tax years prior to the reduction in the Annual Allowance to £50,000 and is a transitional arrangement.
Carry forward can only be used where the client has fully utilised the Annual Allowance for the current tax year. Tax relief on personal contributions will only apply in the tax year they are paid and must be supported by earnings.
Example
The following example shows how the carry forward recalculation can now make a difference to the contributions made by the client:
- 2008-09 £30,000
- 2009-10 £100,000
- 2010-11 £30,000
Previous carry forward allowance £20,000
The excess from tax year 2009-10 would have wiped out the unused allowance from 2008-09.
Under the amended rules, the client could now carry forward £40,000
£20,000 from 2008-09 and £20,000 from 2010-11.