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Carry forward in the 2015/16 transitional year
Since 6 April 2019 it is no longer possible to carry forward unused annual allowance from the 2015/16 tax year.
Key facts
- The 8 July 2015 Budget aligned pension input periods with tax years; this applies to all pension schemes.
- For the purposes of the annual allowance 2015/16 was split into two mini tax years, the pre-alignment tax year and the post-alignment tax year.
- The pre-alignment tax year was the period that ran from 6 April 2015 to 8 July 2015.
- The post-alignment tax year was the period that ran from 9 July 2015 to 5 April 2016.
- The annual allowance for the pre-alignment period was £80,000 and £0 for the post-alignment period. Any unused annual allowance from the pre-alignment period could be used in the post-alignment period, capped at a maximum of £40,000.
- Only unused annual allowance from the post-alignment period could be carried forward.
In the 8 July 2015 Budget the Chancellor announced that pension input periods (PIP) for all pension plans would be aligned with the tax year.
What this meant was that the PIPs for every pension plan closed on the 8 July 2015 and the next PIP ran from 9 July 2015 to 5 April 2016.
What annual allowance applies?
The period 6 April 2015 to 8 July 2015 is known as the pre-alignment tax year. The annual allowance that applies to PIPs ending in this period was £80,000.
The period that started on 9 July 2015 and ended on the 5 April 2016 is known as the post-alignment tax year; this was also the next PIP. The annual allowance that applied to this PIP was £0, any unused annual allowance from the pre-alignment period could be used in the post-alignment PIP. The maximum amount that could be used in this way was capped at £40,000.
This was done to ensure that individuals did not unfairly face tax charges that were caused by PIPs being brought into alignment with the tax year.
What does this mean for carry forward?
Firstly, the ability to carry forward unused annual allowance is still possible but the treatment of the payments made in PIPs ending in the 2015/16 tax year are treated slightly differently from normal years.
The combined pre- and post-alignment periods are treated as one tax year for calculating what unused annual allowance can be carried forward.
For the purposes of carry forward the pre-alignment period is completely ignored. It is only the unused annual allowance from the post-alignment period that can be carried forward.
How does this work in practice?
For the 2017/18 tax year you can carry forward unused annual allowance from:
- The PIP ending in the 2014/15 tax year
- The 9 July 2015 to 5 April 2016 PIP
- The PIP ending in the 2016/17 tax year
Case study
Nick’s pension input periods ran as follows:
| Pension input period | Amount paid | Annual Allowance | Carry forward available | |
|---|---|---|---|---|
| (a) | 14 July 2013 to 13 July 2014 | £25,000 | £40,000 | £15,000 |
| (b) | 14 July 2014 to 8 July 2015 | £25,000 | £80,000 | Nil |
| (c) | 9 July 2015 to 5 April 2016 | £25,000 | £40,000 | £20,000 |
| (d) | 6 April 2016 to 5 April 2017 | £25,000 | £40,000 | £15,000 |
So the amount of unused annual allowance available to carry forward is £50,000 being £15,000 (a) + £20,000 (c) + £15,000 (d), (b) is ignored as this was the pre-alignment tax year.
He would have to use up the annual allowance for 2017/18 first before they could carry forward any unused annual allowance.
Disclaimer
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.