Annual allowance - do we have two of them this year?

madeinireland_2

I need a knowledgable person to explain this in simple terms if they could.

I normally try to maximise pension contributions to £40k a year including company bonus - DB increases to pay etc. I have pretty much used up my carry forward allowance over previous years. So when I get to feb I work out how much is left and dump the relevant amount into a SIPP.

I've just read a faily complex article that suggests we have £80k as an annual allowance this year as its split into two tax years as a result of budget changes. I'm not sure how I missed that - but is it correct?

Guidance appreciated. If true it would help me as it give me a good pension contribution just before the lifetime limit is reduced to maximise the potential of individual protection?

Can anyone confirm or am I missing something here - like it only applies to those paid over £150k or something?

Thanks.

EdSwippet

madeinireland wrote: »

...I've just read a faily complex article that suggests we have £80k as an annual allowance this year as its split into two tax years as a result of budget changes. I'm not sure how I missed that - but is it correct?

Yes. Everyone gets a pre-emergency-budget £80k allowance this year, of which a maximum of £40k can be carried over into the post-budget period.

As I understand it, suppose you are in a scheme where 'pension input periods' are already aligned to tax years, and you contributed £10k between April 6th and the 'emergency' budget. You now have £70k of allowance remaining, but can carry over only £40k. So you can put another £40k into pensions before April 2016. In total, then, £50k of tax-deferred pension contributions this year.

I'll be taking as much advantage of this as is possible, because I will retire before April due to the LTA reduction.

(Disclaimer: I'm not sure I'm a completely 'knowledgeable person' here, so make sure to double-check.)

HappyHarry

Effectively any contribution you made this year before 9 July is ignored for annual allowance purposes. Future carry forward will only count post 9 July contributions.

Anyone that made their full £40,000 pre 9 July can make another contribution, earning permitting. (You are still restricted by your earnings for the entire 2015/16 tax year.)

Anyone who contributed more than £40,000 pre 9 July has a more complex scenario.

madeinireland_2

Oh that sounds good then as my bonus and some of my pay related contribution would have gone in before the budget in July.

So we won't get the full £80k then if our contribution before the budget was less than £40k? - not that I would be able to put £80k in.

What RPI is used for the increase then - the previous September rate for both periods ?

kangoora

I contributed £10k before 9th July. I guess that means I still have £40k for the remainder of the year if I'm reading this right?

So, if I put another £27k in between 9th July and 5th April 2016 I still have a carry-forward allowance of £13k if I need it in a later year?

Just trying to get this straight.

madeinireland_2

I would imagine it would depend on what carry forward you had left at the start of this year as well so perhaps £13k plus that carry forward - although what about the £30k from the first part of this year???

HappyHarry

So we won't get the full £80k then if our contribution before the budget was less than £40k? - not that I would be able to put £80k in.

Unfortunately not. Any unused pre 9 July allowance is lost.

bigadaj

HappyHarry wrote: »

Unfortunately not. Any unused pre 9 July allowance is lost.

Would agree but I'm not clear on how the carry forward allowance is working with this, are we classed as having two tax years this tax year for contribution purposes, so if you earn a lot then the pre July can be carried forward so long as you earn the £40k plus amounts you want to contribute post July?

HappyHarry

Would agree but I'm not clear on how the carry forward allowance is working with this, are we classed as having two tax years this tax year for contribution purposes, so if you earn a lot then the pre July can be carried forward so long as you earn the £40k plus amounts you want to contribute post July?

Not quite, and it is complex. Effectively the annual allowance for post July is £0, but you can carry forward up to £40,000 of £80,000 from pre July.

Prudential have a good explanation here: http://www.pruadviser.co.uk/content/knowledge/technical-centre/consultations-budget-autumn-statement/summer-budget-2015/transitional-provisions/

Which uses these examples:

Example 1
John has pension's savings of £75,000 for pension input periods ending 2015-16 of which £61,000 was made before 9th July 2015 and £14,000 after. He is not subject to the Money Purchase Annual Allowance. As John's savings are less than £80,000 and his post budget savings are less than £40,000 he will not have an annual allowance charge.

Example 2
Ian's saving in the pre-aligned tax year are £61,000. His annual allowance for the post-alignment tax year is therefore £19,000 plus any available carry forward.

TheTracker

I read the legislation and guidance to mean the 40k between April and July was "use it or lose it", those lucky enough to have contributed got a free uncounted boost. Good by me, I had put 40k in April. I subsequently put another 40k in. And fortunately only got around to investing it a couple of weeks ago after the downturn.

But my accountant's legal adviser feels you can carry forward the unused portion of the short-year into future years. Surprised me, but he's lawyer/accountant. The gov.uk examples seem to only partially cover the permutations. Another professional/legal community advised it was use or lose.

Granted few people would be in a position to exploit the situation.But it would be interesting to hear what the IFAs here advise clients on allowable options.

There was a thread on the subject here back in mid/late April.

wary

I'm a little confused as to how this works.

Keep it simple and forget carry-forward entitlements; just consider 2015/16 contribution limits.

I contributed £13500 up to 8 July. Is my allowance for 9 July to 5 April £40K (i.e. the clock is simply reset) or £66500 (i.e. an overall limit of £80K regardless)?