As you know, a new carry forward facility was introduced on 6 April 2011. This allows individuals to carry forward any unused Annual Allowance from the previous three tax years, as long as they have been a member of a registered pension scheme at some time during the tax year for which contributions are being carried forward (regardless of whether they made any contributions during that year).
For the 2011/12 tax year carry forward will be available against an assumed Annual Allowance of £50,000 for each of the tax years 2008/09, 2009/10 and 2010/11. There is a strict order in which an individual can use up their Annual Allowance – the Annual Allowance in the current tax year is used up first, followed by the unused Annual Allowances from the three earlier years, using the earliest tax year first.
Note: Contributions made using the carry forward facility will be subject to the usual rules on pensions tax relief
HMRC has just announced a clarification of who is eligible for carry forward and a small, but useful, change to the carry forward rules, as follows.
1. HMRC has confirmed that the carry forward facility is available to anyone who was an active member, a pensioner member, a deferred member or a pension credit member of a pension scheme at any time in the tax year for which the carry forward facility is being used. However, contributions made using the carry forward facility can be paid to any registered pension scheme and don’t have to be paid to the scheme of which the individual was a member.
2. Under the original carry forward rules, if the contributions actually paid in pension input periods ending in the 2009/10 or 2010/11 tax years exceeded £50,000 then the amounts carried forward had to be reduced by the excess. This requirement has now been removed. This is best explained by the following example.
Consider an individual whose contribution history is as follows:
Tax year Contributions paid in pension input period ending in the tax year
2008/09 £30,000
2009/10 £40,000
2010/11 £75,000
Under the original carry forward rules the individual could carry forward £20,000 for 2008/09 and a further £10,000 for 2009/10, making £30,000. However, this had to be reduced by £25,000 (since the contribution for 2010/11 exceeded the £50,000 Annual Allowance by £25,000), so the individual could carry forward only £5,000 to 2011/12.
Under the amended carry forward rules the individual can carry forward £30,000 to 2011/12 since there is no longer any need to deduct the excess payment of £25,000 for 2010/11.
Should you require more information on this topic, please do not hesitate to contact us on 01737 225665 or advice@conceptfp.com and we will be more than happy to answer any questions.
Take a look at our Saving for Retirement Guide here
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Source – SippChoice
