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Pension Carry Forward

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.

Client Circumstances:

  • 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.

Recommended Solutions:

  • 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:-

pension-carry-forward-chart

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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Future Servicing

We will look to carry out a regular review of your circumstances, objectives, needs and portfolio performance to ensure all arrangements continue to be suitable and advise of any changes that may be appropriate.

This example is for illustrative purposes only, based on current legislation and tax allowances. Tax rules and regulations are subject to change.

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