Please can someone assist with tapered annual allowance calculations/pension tax charge questions:
1) When looking at unused allowances brought forward what is the first year that you can start? (The HMRC calculator starts in 2010-11, is there any reason you can't start earlier?)
2) If the allowance is exceeded then I assume the pension tax charge applies to all pension contributions even if they were salary sacrifice and employer contributions?
Thanks
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Replies (13)
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1. Not sure why you are asking the question as you can only carry forward unused amounts for 3 years. 2016/2017 was the first taper year.
See this for 2011/2012:-
https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm055100
2. Yes.
Thanks. Since it is FIFO then I would like to know the amount of unused relief brought forward to 2016-17 since, if the annual allowance was restricted to £10,000 since then, the brought forward will affect which allowances were used and thus any tax charge.
The reason I am asking is the following.
Say the annual allowance since 2016-17 has been restricted to £10,000 per annum and the annual contributions are £20,000.
If there was no brought forward at the start of 16-17 then the excess subject to a pension tax charge would be £10,000 per annum for 5 years. Whereas if there were in excess of £50,000 unused allowances brought forward then there would be no excess contributions.
I hope that makes sense. Thanks for any thoughts.
Indeed - and at the risk of stating the blindingly obvious, you can't have any unused allowances to bring forward from before the first year of the scheme.
There are however some quite complex changes along the way thereafter, so the URL kindly provided by Wanderer is a really good place to start.
Thanks the client has had a pension for decades.
Yes Wanderer’s link is helpful. In the examples it talks of earlier years such as 2008-9 so I can’t work out the first year you look at. For other clients there wasn’t a charge after using brought forward allowances but never had to go back too far as never been restricted to £10k pa. I think if I can get £50-£60k b/f then should be ok until 20-21 but then has an issue.
Actually I am now thinking that there is a pension tax charge from 2019-20 since there is no brought forward as the current year allowances from the previous 3 years have all been used as they have to be used first.
Thanks. I think the b/f from 16-17, 17-18 and 18-19 are actually nil since the allowances were £10k each year and had to be used first.
I assume you have high earners, are your clients aware of the taper? It seems these taxpayers have not been made aware of the limit/potential tax charge by their employers or pension schemes and don’t have financial advisers.
You are very likely correct. 2019/2020 was the year when it really started to bite as taper applied from 2016/2017 and therefore the probability of unused past allowances being available in 2019/2020 was very much lower than in the past.Actually I am now thinking that there is a pension tax charge from 2019-20......
We did a load of work around this back then and it was frightening how low was the understanding of the problem by some IFAs. (To balance others were excellent & were all over the issue.)
