Willis Insurance

The carry forward of the allowance was mainly introduced to remove an Annual Allowance Charge for those in Final Salary Schemes who had received a promotion and a significant pay rise resulting in a large pension input amount. (Annual Allowance reduced from £255,000 to £50,000).

As a consequence of this legislation it allows an opportunity for individuals in money purchase pension schemes to make up some lost ground due to the anti-forestalling legislation and allow the self employed an opportunity to make larger contributions in the years when their profits are higher.

The examples below show some explanation on how carry forward can be used but please contact us before making any contributions based on these examples as each individuals circumstance is different. For each example it is assumed that the pension input periods (PIP) are aligned with the tax years and that there are no defined benefit or cash balance pensions savings involved.

 

·      Individual is able to make a tax-relievable personal contribution of £115,000 in tax year 2011/12, presuming they have relevant UK earnings to support this contribution. The individual above has made a contribution of £85,000 in 2011/12, with the intention of making a further contribution of£80,000 in 2012/12.

·      In determining the amount of unused Annual Allowance available for 2012/13, legislation dictates that we start from 2009/10. The 2008/09 unused annual allowance drops out whether it has been used up or not as it does not fall within the preceding three tax years. Therefore in 2012/13 the client will have £30,000 of unused Annual Allowance available from her previous three tax years. The £85,000 contribution in 2011/12 utilised the £35,000 of unused Annual Allowance in 2008/09 (the unused annual allowance used up first is the earliest of the preceding three tax years).

 Example 2

Tax Year	Contribution (£)	Unused AA (£)	Notes
2008/09	10,000	40,000	Total of unused AA for three years from 2008/09 to 2010/11 is £20,000. This is available for carry forward to 2011/12
2009/10	110,000	0
2010/11	30,000	20,000
2011/12

 

·      Individual wishes to make the maximum contribution to their pension plan in 2011/12. This would be £70,000 as the contribution in 2009/10 which exceeded £50,000 nullifies all of the £40,000 of unused annual allowance in 2008/09

·      Individual is able to make a tax-relievable contribution of up to £80,000 on tax year 2011/12, but due to affordability they make a contribution on £65,000.

·      If the individual wants to avoid an Annual Allowance charge in tax year 2012/13 they would be restricted to a contribution of £65,000. This is due to the unused annual allowance from 2010/11. The contribution in 2009/10 accounted for only £10,000 of unused annual allowance from 2008/09 leaving £15,000 still available. The contribution paid in 2011/12 exceeds £50,000 and the £15,000 excess is accounted for by unused annual allowance still available from 2008/09.

Example 4

Tax Year	Contribution (£)	Unused AA (£)	Notes
2008/09	15,000	35,000	Total of unused AA for three years from 2008/09 to 2010/11 is £135,000. This is available for carry forward to 2011/12
2009/10	0	50,000
2010/11	0	50,000
2011/12	85,000	0

·      Individual is able to make a tax-relievable contribution of up to £185,000 on tax year 2011/12, but due to affordability they make a contribution on £85,000 utilising the unused annual allowance of £35,000 from 2008/09 as this allowance would be lost if not used up in 2011/12.

·      If the individual wants to avoid an Annual Allowance charge in tax year 2012/13 they would be restricted to a contribution of £150,000. This is due to the unused annual allowance from 2009/10 and 2010/11.