HMRC relaxes pension ‘carry forward’ rules

IFAonline | 28 Nov 2011 | 14:03
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Her Majesty’s Revenue and Customs (HMRC) has altered its interpretation of annual allowance rules to let investors save more this year.

Under rules that came into force in April this year, investors would are allowed to "carry forward" their annual allowance (AA) on pension contributions from the previous three years to avoid paying high tax charges on contributions of more than £50,000 this year.

Previously, these rules were interpreted so that investors who saved more than £50,000 in 2009/10 or 2010/11 would use up some of their AA from previous tax years, reducing what they could carry forward.

However, HMRC has confirmed that AA from earlier tax years will not be used up by large contributions in 2009 and 2010.

AJ Bell's technical marketing manager Gareth James set out an example of an investor who paid in £100,000 in this tax year and £110,000 in 2010/11.

This investor would therefore need to carry forward £50,000 from previous tax years to avoid an AA tax charge.

"Using the previous interpretation of the rules they did not have any AA available because the contribution paid in 2010/11 used up all of the AA from the previous two tax years, so they would face a tax charge," said James.

"Using the new interpretation the large contribution in 2010/11 does not have any impact on the AA available from the earlier tax years; they still have £60,000 carry forward still available, and so do not face a tax charge."


Previous Rules

Year  Paid in AA used by 2010 contribution  AA available 
 2008/09  £20,000 £30,000  £0
 2009/10  £20,000  £30,000  £0
 2010/2011  £110,000  £50,000  £0

 Carry forward available



New Rules

 Year Paid in AA used by 2010 contribution  AA available
 2008/09  £20,000  £0  £30,000
 2009/10  £20,000  £0  £30,000
 2010/11  £110,000  £50,000  £0
 Carry forward available      £60,000




Categories: Investment|Personal Pensions

Topics: lifetime allowance|Pensions tax|HMRC|Aj Bell

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