Relaxation of carry-forward rules means new contribution opportunity

On 25 November 2011 Her Majesty’s Revenue and Customs (HMRC) published a change to its interpretation of how carry-forward is calculated. The change in calculation method is a positive change as it potentially increases the tax relievable contribution that can be paid using the carry-forward facility.

The changes amount to a relaxation of certain limits in 2008-2009, 2009-2010 and 2010-2011, which might allow higher contributions to be paid to pension schemes in pension input periods ending in the 2011-2012 and 2012-2013 tax years, compared to the previous industry accepted method of calculation. HMRC’s relaxation means each of the three previous tax years can be assessed independently of each other when working out how much unused annual allowance is available to carry forward.

The change has come about through HMRC reappraising the wording within the Finance Act 2011. It would appear that the intention was to operate carry-forward as set out under the previous method but the strict interpretation of the legislation means that the new method applies.

The carry-forward facility allows unused annual allowances from the previous three pension input periods to be used to contribute more than the annual allowance in the current pension input period and for it to be treated as a tax relievable contribution. The annual allowance for the purposes of carry-forward is £50,000 in each pension input period and it should be remembered that an individual must be a member of a registered pension schemes in the applicable tax years.

Those who have already utilised carry-forward using the previous method may wish to review their contributions to assess whether any additional carry-forward amount, as calculated under the new method, may be available.

If you have any questions, please send them via the enquiry box on the right hand side, call 08445 440550 or email us.