Pension Carry Forward
Sarah earns £185,000 per annum and has a history of making substantial pension contributions. She has recently inherited £150,000 and is considering a pension contribution of £50,000 to boost her retirement planning, but is confused about how much she can pay into a pension and obtain tax relief.
- Age 50 and looking to boost retirement provision.
- 45% tax payer.
- No dependents.
- Has £150,000 of spare capital to invest for her long term future.
- History of making large pension contributions.
- Unsure of how much she can pay in and obtain tax relief.
- Make a pension contribution of £85,000.
- Carry forward unused pension allowance for use in future years (see over the page).
Benefits from advice given:
- 45% tax relief on £35,000 of the pension contribution = £15,750.
- 40% tax relief on £50,000 of the pension contribution = £20,000.
- Sarah regains the use of her personal allowance of £10,000 representing a tax saving of £2,000 (£10,000 x 20%).
- Carry forward unused allowance to allow future pension contributions and associated tax.
- Sarah now understands what can be paid into pensions for this tax year and future tax years.
Sarah’s history of pension funding is summarised below:-
Sarah decides to make a pension contribution of £85,000 into her SIPP, giving her a total pension input amount of £85,000 for the tax year 2014/15. This contribution, in total, used not only her current annual allowance of £40,000, but also £30,000 of her unused allowance from tax year 2011/12 plus £15,000 of her unused allowance from 2013/14.
This leaves £20,000 of un-used allowance which can be carried forward for future years.
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This example is for illustrative purposes only, based on current legislation and tax allowances. Tax rules and regulations are subject to change.