Check your pension savings annual allowance
Sep 07, 2018
HMRC have updated their guidance on the rules for carrying forward the unused pension savings annual allowance, together with a calculator on their website.
For most taxpayers the maximum amount of pension savings that qualifies for tax relief each tax year is £40,000. It is possible to increase this amount by utilising unused relief brought forward from the previous three tax years, provided that you were a member of a pension scheme that year.
The brought forward relief from the earliest year is used before later years. So, for the current tax year 2018/19 the unused relief from 2015/16 may be used in addition to the current year relief, followed by 2016/17 and then 2017/18.
2015/16 pension annual allowance lapses on 5 April 2019
To use the 2015/16 unused relief, any additional pension savings will need to be paid to the pension fund by 5 April 2019, otherwise the relief from 2015/16 will lapse.
Be aware however that for some taxpayers the method of calculating unused relief for 2015/16 is extremely complicated, as the government changed the pension rules part way through the year on 8 July 2015. The amount of pension allowance will depend on the pension input period of your scheme, and we can assist you in calculating your 2015/16 relief if you have not had full relief already.
Tapered pension tax relief for those with high income
For most taxpayers the maximum pension input annual allowance is currently £40,000.
However, from 2016/17 those taxpayers with ‘adjusted income’ over £150,000 and ‘threshold income’ over £110,000 receive a tapered annual allowance. For those people affected the allowance tapers by £1 for every £2 that their adjusted income exceeds £150,000, down to a minimum annual allowance of £10,000.
The calculations of ‘adjusted income’ and ‘threshold income’ are complicated and we can help you if you believe that this restriction applies. There are ways in which these figures can be reduced to minimise the effect of the restriction.
You may have to pay tax if you exceed the annual allowance
If your pension savings are more than your annual allowance for the tax year, and you do not have unused annual allowances from the three previous tax years to cover the difference, you’ll have to pay tax on the excess.
You’ll get a statement from your pension provider telling you if you go above the annual allowance. If you’re in more than one pension scheme, ask each pension provider for statements. This will help you work out how much you’ve gone above the allowance.
There is a calculator on the HMRC website but we can of course help you check that you have not exceeded the limits.
As you can probably tell from this article, despite the ‘simplification’ of pensions by George Osborne in 2015 the system is still extremely complicated, and we are expecting yet further reforms in future Budgets. Nevertheless, saving in a pension is still very tax-efficient – for a higher rate taxpayer the net cost of saving £10,000 in a pension is currently £6,000.