Annual allowance to be reduced to £10000

zagfles

The other issue that occurs to me is what order the c/f is done. Say someone has £10k unused AA from the 2012/13 tax year.

Normally, to use this they would have to contribute this year's full AA plus £10k, ie £50k, otherwise they lose it.

But if they only contribute £10k this year post budget, does the £10k c/f get taken from the 2012/13 tax year before the pre-budget mini tax year this year?

hugheskevi

Is this right? Surely not?

That is the logical interpretation of what is written in the HMRC material.

I suspect they meant to use 'post' rather than 'pre' in the wording, it makes sense then.

The other issue that occurs to me is what order the c/f is done. Say someone has £10k unused AA from the 2012/13 tax year.

Normally, to use this they would have to contribute this year's full AA plus £10k, ie £50k, otherwise they lose it.

But if they only contribute £10k this year post budget, does the £10k c/f get taken from the 2012/13 tax year before the pre-budget mini tax year this year?

My reading is that in the pre-budget mini tax year the order of useage of Annual Allowance is firstly £80,000 and any surplus over that uses 2012/13 carry-forward first, then 2013/14 carry-forward and then 2014/15 carry-forward. Any unused carry-forward from those years can then be used in the post budget mini tax year.

If the £80,000 is not fully used, the remaining amount from the pre budget mini tax year becomes the Annual Allowance for the post budget mini tax year, subject to a cap of £40,000. All the carry-forward from 2012/13, 2013/14 and 2014/15 is available. But pension input in the post budget mini tax year would firstly count against the remaining Annual Allowance carried forward from the pre budget mini tax year, then against 2012/13, then 2013/14 and finally 2014/15.

And people say that pensions are unnecessarily complicated

zagfles

hugheskevi wrote: »

That is the logical interpretation of what is written in the HMRC material.

I suspect they meant to use 'post' rather than 'pre' in the wording, it makes sense then.

But the 'post' allowance is nil, so there's nothing to c/f.

'pre' subject to £40k max would make sense.

My reading is that in the pre-budget mini tax year the order of useage of Annual Allowance is firstly £80,000 and any surplus over that uses 2012/13 carry-forward first, then 2013/14 carry-forward and then 2014/15 carry-forward. Any unused carry-forward from those years can then be used in the post budget mini tax year.

Yes, agreed.

If the £80,000 is not fully used, the remaining amount from the pre budget mini tax year becomes the Annual Allowance for the post budget mini tax year, subject to a cap of £40,000. All the carry-forward from 2012/13, 2013/14 and 2014/15 is available. But pension input in the post budget mini tax year would firstly count against the remaining Annual Allowance carried forward from the pre budget mini tax year, then against 2012/13, then 2013/14 and finally 2014/15.

The document seems to inconsistent in the wording, some bits imply the remaining AA (max £40k) from the 'pre' part becomes the AA for the 'post' part, which would agree with your interpretation, but other bits say the 'pre' part is carried fowards to the 'post' part. Which would imply it would use the normal rule of taking the earliest available 'tax year' first.

And people say that pensions are unnecessarily complicated

Yes I'm sure they could have done this in a much simpler way...

hugheskevi

But the 'post' allowance is nil, so there's nothing to c/f.

It starts out as nil, but then becomes the left-over value from the pre-budget period from which inputs in the post budget period are taken. Whatever is left (if anything) after inputs from post budget period are taken is what is left available for carry-forward.

Normal Annual Allowances start at £40,000, and whatever is left after inputs are subtracted is then available for carry-forward, so I don't see the starting value as being particularly important.

My guess is that there has been a fault in the HMRC instructions, and the most likely explanation is a failure in quality assurance process which has overlooked one word, albeit a very key word. Some worked examples would have been extremely helpful to resolve the ambiguity, but none have been provided (perhaps indicative of that part being written at the eleventh hour). There are other possibilities, but I think this is the most likely.

gadgetmind

Just when we thought that Pension Input Periods couldn't get any more complicated!

zagfles

hugheskevi wrote: »

It starts out as nil, but then becomes the left-over value from the pre-budget period from which inputs in the post budget period are taken. Whatever is left (if anything) after inputs from post budget period are taken is what is left available for carry-forward.

Normal Annual Allowances start at £40,000, and whatever is left after inputs are subtracted is then available for carry-forward, so I don't see the starting value as being particularly important.

My guess is that there has been a fault in the HMRC instructions, and the most likely explanation is a failure in quality assurance process which has overlooked one word, albeit a very key word. Some worked examples would have been extremely helpful to resolve the ambiguity, but none have been provided (perhaps indicative of that part being written at the eleventh hour). There are other possibilities, but I think this is the most likely.

I think it might be correct, and we're making the wrong assumption about the purpose of the £40k restriction on the 'post' budget carry over from 'pre' budget.

Think about how to go about tax-year aligning the PIP from scratch. To do it in 2015/16, everyone with a non-tax year aligned PIP is going to end up with two PIP's ending in this tax year.

This will be one of 12 months, plus one of less than 12 months, anything from 0 days (for someone with a tax-year aligned PIP, ending 5 April) to 365 days (for someone with a PIP ending on 6 April).

So for instance someone with a PIP ending 30 Sept will have all their pension contributions from 1/10/14 to 30/9/15 plus those from 1/10/15 to 5/4/16 counted in the 2015/16 tax year. So a year and half's pension input counted in the same year. For other dates it'll be be something between a year and almost 2 years.

So it makes sense to have a £80k allowance for the 2015/16 tax year, so you cater for the 'worst case', otherwise some people will lose out, eg anyone who contributes AA/12 every month and doesn't have a tax-year aligned PIP.

Unless you complicate things by varying the AA depending on when the PIP ends, but this would get very complicated for people with multiple schemes with different PIPs.

But, why not simply set an £80k AA this tax year, why split it into 2 mini-tax years?

The reason is probably an anti-forestalling measure for those earning over £150k. So it makes sense to only allow £40k to be carried over into the remainder of this tax year, and allow the rest to be carried over into future tax years when the taper will apply.

So perhaps the technical note is correct as it stands. If so, it's brilliant for those with tax-year aligned PIP's!

dunstonh

gadgetmind wrote: »

Just when we thought that Pension Input Periods couldn't get any more complicated!

So much for the 2006 legislation changes that were heralded as pension simplification. We now need a 2016 version