SIPP Allowance for 2015/16

westy22

Despite reading up on the transitional arrangements for Pension Allowances in 2015/16 I am still a little confused about the actual workings of this new initiative and would appreciate the advice of more experienced members.

I am a company owner and currently my company pays £3,333 per month by DD to my SIPP (£39,996 in this tax year).

3 payments have been made so far (1st of May, Jun & Jul) totalling £9,999 during the pre-alignment year.

Is the allowance now reset as at 9 July enabling the company to make further contributions totalling £40,000 in the post-alignment year of 9 Jul 15 to 5 Apr 16, i.e. a total of £49,999 this tax year?

TIA

kidmugsy

Here's my understanding of it (open to correction, of course).

The pre-alignment allowance is £80k. The post-alignment allowance is the lesser of (i) the unused portion of the the pre-alignment allowance, or (ii) £40k.

Thus your £9999 was in the "pre-alignment" period (i.e. before the Summer Budget of 8/7/2015), and therefore you still have a further £40k allowance for the "Post-alignment" period i.e. from the Budget on until 5/4/2016.

All of this is presumably subject to your earnings, or to aspects of company affairs with which I am unfamiliar but which you seem to be on top of.

westy22

Thanks, kidmugsy. That fits in with my understanding but the official documents are written in the most obscure way and I was beginning to doubt myself.

Paul_Herring

To confirm: https://www.gov.uk/government/publications/pensions-tapered-annual-allowance/pensions-tapered-annual-allowance

To prevent retrospective taxation, individuals will have an £80,000 annual allowance for 2015 to 2016, but subject to a £40,000 allowance for savings from 9 July 2015 to 5 April 2016. To achieve this, the 2015 to 2016 tax year will be split into two notional periods, 6 April 2015 to 8 July 2015, the ‘pre-alignment tax year’ and 9 July 2015 to 5 April 2016, the ‘post-alignment tax year’. All individuals will have an annual allowance of £80,000 for the ‘pre-alignment tax year’. Where this [total] amount has not been used in the ‘pre-alignment tax year’ [in its entirety], it will be carried forward to the post-alignment tax year, subject to a maximum of £40,000. In addition, any unused annual allowance from the previous 3 years can be added to these amounts in the normal way.

So effectively, yes - it got reset to £40,000 on 9 July 2015 for everyone who contributed <£40,000 before 8 July 2015.

kidmugsy

Paul_Herring wrote: »

To confirm: https://www.gov.uk/government/publications/pensions-tapered-annual-allowance/pensions-tapered-annual-allowance

So effectively, yes - it got reset to £40,000 on 9 July 2015 for everyone who contributed <£40,000 before 8 July 2015.

I prefer my phrasing to theirs, eh?

Paul_Herring

Sure, but it's couched in legalese in an attempt to prevent loopholes.

Unsuccessfully in my opinion - what happens to any 'unused' portion of the pre-alignment £80,000 amount next tax year?

i.e. Does it become part of "unused annual allowance from the previous 3 years" in 2016/17?

I can guess that the intention is not but....

hugheskevi

Is there suspicion that this may not pass the Prime Minister's clarity demand? Surely this passes the test that

All our communications with the public should be human, clear, simple, helpful and professional. This means explaining complexity in everyday terms and translating jargon into simple English. If we can’t do that, we won’t communicate.

kidmugsy

Paul_Herring wrote: »

Sure, but it's couched in legalese in an attempt to prevent loopholes.

Unsuccessfully in my opinion

Unsuccessfully in spades: there's even a dangling "maximum" where you can't see what it's meant to apply to. If the chap who wrote that bit of law had submitted it to his tutor in undergraduate days, the tutor - if a sound man - would have torn it up before his eyes and told him to have another go. It's execrable.

kidmugsy

Paul_Herring wrote: »

what happens to any 'unused' portion of the pre-alignment £80,000 amount next tax year?

i.e. Does it become part of "unused annual allowance from the previous 3 years" in 2016/17?

Indeed. I repeat: "execrable".

Here's my go.

To prevent retrospective taxation the 2015 to 2016 tax year will be split into two notional periods, 6 April 2015 to 8 July 2015, the ‘pre-alignment tax year’ and 9 July 2015 to 5 April 2016, the ‘post-alignment tax year’. The pre-alignment allowance is £80k. The post-alignment allowance is the lesser of (i) the unused portion of the the pre-alignment allowance, or (ii) £40k. In addition, any unused annual allowance from the previous 3 years can be added to these amounts in the normal way. In the case of carry forward from 2015/16 into any future tax year, only the unused portion of the post-alignment allowance may be used.

zagfles

kidmugsy wrote: »

Indeed. I repeat: "execrable".

Here's my go.

To prevent retrospective taxation the 2015 to 2016 tax year will be split into two notional periods, 6 April 2015 to 8 July 2015, the ‘pre-alignment tax year’ and 9 July 2015 to 5 April 2016, the ‘post-alignment tax year’. The pre-alignment allowance is £80k. The post-alignment allowance is the lesser of (i) the unused portion of the the pre-alignment allowance, or (ii) £40k. In addition, any unused annual allowance from the previous 3 years can be added to these amounts in the normal way. In the case of carry forward from 2015/16 into any future tax year, only the unused portion of the post-alignment allowance may be used.

That's not what the technical note says, it says the pre-alignment allowance can be carried forwards to future years.

https://www.gov.uk/government/publications/pensions-technical-note-transitional-provisions-for-aligning-pension-input-periods/pensions-technical-note-transitional-provisions-for-aligning-pension-input-periods

kidmugsy

zagfles wrote: »

That's not what the technical note says, it says the pre-alignment allowance can be carried forwards to future years.

https://www.gov.uk/government/publications/pensions-technical-note-transitional-provisions-for-aligning-pension-input-periods/pensions-technical-note-transitional-provisions-for-aligning-pension-input-periods

Thank you. I was drafting based on what I understood other commenters to have said; or, if they were right all along, I was being careless. My point, however, isn't so much about content, as about the use of English in the document; it fails the elementary test of being comprehensible to many readers.

The part you are referring to is presumably this (which seems clear enough):

"For 3 tax years after 2015 to 2016, carry forward will be available as follows:

for 2016 to 2017 from 2013 to 2014, 2014 to 2015 and the pre-alignment tax year
for 2017 to 2018 from 2014 to 2015, the pre-alignment tax year and 2016 to 2017
for 2018- to 2019 from the pre-alignment tax year, 2016 to 2017 and 2017 to 2018"

I'm surprised that people will be able to carry forward the unused part of £80k. That seems huge. I can see the reason for the large allowance for the pre-alignment period - as they say it's to avoid accidentally applying retrospective taxation (well done, Osborne). But how is the carrying forward of the (up to) £80k justified? Is it intended to act as temporary compensation for the future reduced annual allowance for the very highly paid?

Is our OP, westy22, eventually going to be allowed to carry forward £70k from the pre-alignment period into subsequent years, even though he will have contributed £40k in the post-alignment period? Or is the seeming simplicity and clarity of the passage I've quoted an illusion?


Afterthought: the penny drops. I suspect it's an illusion. Is westy22 actually going to be allowed to carry forward £80k less £10k less £40k = £30k? Yes, that presumably will be because the £40k is looked on as using part of the £80k pre-alignment allowance.

It remains only to congratulate Osborne on grasping the nettle of simplifying the awkward complication of PIPs not aligning with tax years. Pity about the English.