End of 'carry back' rule deadline

Milarky

It's the 31st January according to the Guardian:

http://money.guardian.co.uk/pensions/story/0,,1687638,00.html

The new rules
Carry back is currently an option for savers with personal or stakeholder pensions, and by anyone with a retirement annuity contract, also known as Section 226 contracts, which was bought before 1988. It will be scrapped as part of a range of reforms aimed at simplifying the pension system, which include changes that make carry back more or less redundant.

Who would take advantage of this now that A Day rules mean you can contribute upto 100% of salary [or £3,600 pa if less]?

Nick_C_4

You might want to carry back before Jan 31st if the tax rate you paid last year is higher than you'll pay this tax year (or next tax year); or if you're going to break the SLA under the new regime and are looking to maximise the fund that you're intending to protect under primary or enhanced protection. As of next year, carryback is not redundant, it's just not available.

Anon

Quick related question (unless I have misunderstood) - I am aware that with my employers pension scheme I can buy additional years. If I go over into 40% tax, it may make sense to pay £X into my pension so that 40% of the additional income above the basic rate tax bracket is not handed over to the government and I will get the benefit later in life. Does this article refer to closing this scenario? As the deadline for self-assessment 2004/5 is 31 January, is there still time to take advantage for 2004/5 tax year (which I thought I had missed) and also for 2005/6?

Many thanks

Anon

Debt_Free_Chick

Anon wrote:

Quick related question (unless I have misunderstood) - I am aware that with my employers pension scheme I can buy additional years. If I go over into 40% tax, it may make sense to pay £X into my pension so that 40% of the additional income above the basic rate tax bracket is not handed over to the government and I will get the benefit later in life. Does this article refer to closing this scenario? As the deadline for self-assessment 2004/5 is 31 January, is there still time to take advantage for 2004/5 tax year (which I thought I had missed) and also for 2005/6?

Many thanks

Anon

No carry back does not apply to AVCs. With AVCs you get the tax relief in the tax year in which you pay the AVCs. So, you cannot pay any AVCs for the 2004/2005 tax year and you have until 5 April to pay for the current year.

In total, your contributions to this scheme (AVCs and any other contributions you normally pay) cannot exceed 15% of your salary from this employer. Salary is, essentially, all the pay you receive plus the taxable value of benefits in kind such as healthcare, company car/petrol etc. This salary is almost certainly higher than the one which the pension scheme uses to calculate your benefits. The pension scheme administrators can help you with the maximum figure, if indeed, you need to pay anywhere near the maximum.

HTH

Cook_County

1. You may also wish to carry back if you expect to have no net relevant earnings in 2005/06 or 2006/07 but had good earnings in 2004/05.

2. Equally the 5 year (and 10- year) carryforward of base earnings disappears on A-day so you may be contributing far more now based on previous high earnings than you will be able to do after A day if you now earn less than you used to!

3. You may wish to pay as much as possible now to minimise income for tax credits this year before Gordon Brown shuts this loophole!

Milarky

Cook_County wrote:

3. You may wish to pay as much as possible now to minimise income for tax credits this year before Gordon Brown shuts this loophole!

Yes that could happen of course, but do you have evidence that he is looking at doing this? I would say that unless a significant portion of the £15billion paid out in tax credits can be attributed to this practice then they have much more to worry about addressing the fraud and the overpayments problems. Besides which, it would look bad for a him. GB is too cautious to dub this a problem. [IMO]

Cook_County

The issue is not so much this tax year as after A day when folks on income of up to £215,000 can claim several thousands of pounds of tax credits plus get tax relief on all of the pension contributions.

The proposed new rules are quite simply too generous and since accountants and IFAs across the land are selling this as a planning idea it is almost certain to disappear at some point!