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Mar
07th

PENSION OPPORTUNITY By: Gordon

From 6 April 2011 the annual allowance for pension contributions will be reduced to £50,000 (from the current £255,000). Any excess may be subject to an annual allowance charge.

However, if you contribute more than £50,000 into your pension you still might not have any annual allowance charge to pay. You can carry forward any annual allowance that you have not used from the previous three tax years to the current tax year.

The amount of the unused annual allowance can then be added to this year’s annual allowance. This gives you a higher amount of available annual allowance.

Please note that you must have been a member of a registered pension scheme to have an unused annual allowance to carry forward from an earlier year.

If your pension saving for the tax year is less than your available annual allowance there will be no annual allowance tax charge.
If your pension saving is more than your available annual allowance you will have to pay the annual allowance charge – but only on the amount over your available annual allowance. You will not need to contact HM Revenue & Customs (HMRC) to tell us that you have unused annual allowance that you want to use to set off against an annual allowance charge for a later year. This doesn’t need to be included on your Self Assessment tax return.

There is a strict order in which you use up your annual allowance. You use the annual allowance in the current tax year first. You then use your unused annual allowance from earlier years, using the earliest tax year first.

If you have been a member of a registered pension scheme but, in one particular year, have not made pension savings for that year then you can carry forward an annual allowance of £50,000 from that year.

This is very important to note – if however, you have not been saving in a registered pension scheme then you will not have unused annual allowance to carry forward from that year.

Example
Sybille has total pension savings of £65,000 for the 2011-12 tax year. In the previous three tax years her pension savings were:

2010-11 – £35,000
2009-10 – £30,000
2008-09 – £25,000

If the annual allowance for each of those years was £50,000 Sybille has unused annual allowance of £25,000, £20,000 and £15,000 from those three tax years:

2010-11 – £15,000
2009-10 – £20,000
2008-09 – £25,000

This means Sybille has £60,000 unused annual allowance to carry forward. Together with the £50,000 annual allowance for the 2011-12 tax year Sybille can have pension saving of £110,000 without the annual allowance charge being due.

Sybille’s pension saving for the 2011-12 tax year is less than her available annual allowance. She does not have to pay the annual allowance charge.

Sybille has used up the £50,000 annual allowance for the current tax year and £15,000 unused annual allowance from three years ago. Although she still has £10,000 unused annual allowance from three years ago she cannot carry this forward to the next tax year.  You can only carry forward unused annual allowance from the last three years and next year the £10,000 unused amount will be from four years ago and so will be out of time and not available.

Sybille has £35,000 unused annual allowance that she can carry forward to next tax year. If the annual allowance in the next tax year is still £50,000 she will be able to making pension saving of £85,000 and still not have any annual allowance charge.

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