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Reinterpretation for carry-forward rules

28 November 2011
Issue: 4332 / Categories: News , Investments
Follows HMRC review of three transitional years

Guidance on how carry-forward works for the transitional years of 2008/09, 2009/10 and 2010/11 has been revised, following a review by HMRC into the department's interpretation worked for the annual allowance.

The relevant pages in the Registered Pension Schemes Manual will be updated; there is no change to the information outside the three transitional years.

Under the new annual allowance regime, in which the pension savings of an individual exceeds the allowance in a tax year, unused amounts from up to three previous tax years are carried forward and offset against the excess, before assessing the annual allowance charge, explained pensions expert Karen Goldschmidt, with carry-forward amounts from 2008/09 to 2010/11 calculated as though the new regime were in place during those periods.

HMRC’s updated reading of the law is that any over-saving in the tax years concerned is ignored and does not use up earlier spare annual allowance. The new reading affects only how the three ‘notional annual allowance’ years interact with each other. There is no alteration to the reading for using up carried-forward unused annual allowance after 6 April 2011.

An individual whose pensions savings are valued for this purpose at £40,000 in 2008/9, £70,000 in 2009/10 and £40,000 in 2010/11 would, under the old reading, when testing for any 2011/12 annual allowance charge, have unused carry-forward available of only £10,000 from 2010/11, because the spare allowance from 2008/09 was used up against the excess in 2009/10. The new interpretation results in a total unused carry-forward of £20,000 for use in 2011/12: £10,000 from 2008/9 and £10,000 from 2010/11.

Karen Goldschmidt, a partner at business consultants Lane Clark & Peacock, said the change is important because ‘it could make a material difference to whether a charge arises – or, alternatively, the scope for extra savings without charge – for some members’.

Analysis by her company shows the revamp has no impact for individuals with spare annual allowance in all three of these years, or with no spare annual allowance in all three; otherwise, it either improves an individual’s position, by at most £100,000, or does not change it.


Issue: 4332 / Categories: News , Investments
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