Carry forward from 6 April 2016

24 May 2016
There were no changes to carry forward announced in the last budget, but advisers and their clients should be aware of how to treat the 2015/16 tax year when using carry forward. This was affected by the alignment of pension input periods (PIPs) to tax years from 8 July 2015.

How does this affect carry forward?

This is best shown by working through a case study. 

Miles is self-employed with an income of £110,000 in 2016/17. He would like to make use of his unused annual allowance to maximise his pension contributions. He has made contributions of £2,000 gross on the first of the month for the last five years and expects this to continue. His PIPs were already aligned with tax years as he took out his plan in 2012. 

He has no other income this year so is unaffected by the tapering of the annual allowance.  Also, as he has no benefits in payment he is unaffected by the money purchase annual allowance.

Using a table we can calculate the unused annual allowance. Remember with carry forward you maximise the current year first then work forwards from the previous three tax years.

Tax year

Annual allowance

Regular contributions

Unused annual allowance

2013/14

£50,000

£24,000

£26,000

2014/15

£40,000

£24,000

£16,000

2015/16 pre-alignment

2015/16 post-alignment

 

£40,000

£6,000

£18,000

 

£22,000

2016/17

£40,000

£24,000

£16,000

Total

 

 

£80,000

In the 2015/16 tax year the annual allowance was £80,000 for the pre-alignment period (the period before 8 July 2015). The post-alignment period had a nil annual allowance, but up to £40,000 of any unused annual allowance from the period up to 8 July 2015 is added to this.

As Miles made contributions of less than £40,000 before 8 July 2015, the maximum of £40,000 can be applied to the post-alignment period.

Miles made three regular contributions before 8 July 2015 and nine contributions after 8 July 2015. The unused annual allowance he can carry forward to 2016/17 from 2015/16 is £22,000 (£40,000 less £18,000). 

The maximum gross tax relievable contribution Miles can make in addition to his ongoing monthly regular contributions is therefore £80,000. 

How does this change if the member used carry forward in the pre-alignment period?

If a member made use of carry forward in the pre-alignment period, the calculation is slightly different. Again, this is best shown by working through a case study.

Simon is self-employed with an income of £170,000 in 2015/16 and £120,000 in 2016/17.  He is a member of a PP and pays regular member contributions. In May 2015 he made a member contribution of £161,050 to make use of his unused annual allowance using carry forward. This contribution was within 100% of his earnings. 

Simon’s PIPs are also aligned with tax years and he makes his regular contributions on the first of the month.

At the time of making the member contribution in May 2015 his carry forward calculation looked like the table below.

Tax year

Annual allowance

Regular contributions

Unused annual allowance

2012/13

£50,000

£4,600

£45,400

2013/14

£50,000

£4,700

£45,300

2014/15

£40,000

£4,750

£35,250

2015/16

£40,000

£4,900

£35,100

Total

 

 

£161,050

Simon has asked his adviser how much he can pay in during tax year 2016/17. He is not affected by the tapering of the annual allowance or the money purchase annual allowance. 

Now looking back on the 2015/16 tax year his carry forward calculation looks like the table below.

Tax year

Annual allowance (AA)

Contributions

Unused AA

Notes

2012/13

£50,000

£4,600

£0

The contributions in the 2015/16 pre-alignment period use all of the unused AA from 2012/13.

2013/14

£50,000

£4,700

£8,425

Contributions of £161,050 + £1,225 - £80,000 AA from the 2015/16 pre-alignment period - £45,400 unused AA from 2012/13 = £36,875.

Unused AA of £45,300 from 2013/14 (£50,000 - £4,700) - £36,875 = £8,425 available for carry forward.

2014/15

£40,000

£4,750

£35,250

Unused AA from 2014/15 is £40,000 - £4,750 = £35,250 available for carry forward.

2015/16 pre-alignment

 

2015/16 post-alignment

£80,000

 



£0

£161,050 +£1,225




£3,675

 

 



-£3,675

The contributions in the pre-alignment period use up all of the annual allowance of £80,000.

 


The contributions in the post-alignment period of £3,675 exceed the available AA.

2016/17

£40,000

£4,900

£35,100

£40,000 - £4,900 = £35,100 available AA.

Total

 

 

£75,100

£35,100 + £8,425 + £35,250 -£3,675 = £75,100.

The single contribution of £161,050 in May 2015 and the regular contributions in the pre-alignment period used annual allowance of £80,000 from the pre-alignment period as well as all of the unused annual allowance from 2012/13 and part of the allowance from 2013/14. The unused annual allowance from 2013/14 and 2014/15 is added to the unused allowance for 2016/17. 

The additional contribution of £3,675 from the post-alignment period would have been liable to an annual allowance charge had it not been for the unused annual allowance of £8,425 in 2013/14. 

The maximum gross tax relievable contribution Simon can make in addition to his ongoing monthly regular contributions is therefore £75,100. This is within 100% of his earnings for 2016/17.

About the author

Fiona Hanrahan

Senior Product Insight and Technical Support Analyst

Fiona has worked in financial services since leaving university in 1998 and has experience of working in technical support and product design as well as working as a financial planner. She’s a Chartered Financial Planner and a Fellow of the Personal Finance Society.

Last updated: 25 May 2016

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