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End of tax year spring clean

by La Playa on March 28th, 2012

Claiming tax relief on pension contributions

It’s possible to make additional pension contributions by the end of this tax year, over and above the normal annual allowance. An individual can go back up to 3 previous tax years and “mop-up” any unused contribution allowance that they may not have used.

The present legislation restricts a client to a maximum pension contribution of 100% of their earned income in any one tax year up to a maximum of £50,000. However if you have not made this level of contributions in previous years, then you can use any unused allowance, known as “carry-forward”. These additional contributions will also benefit from tax relief at your highest marginal rate.

Example: intervening years (2009/10 and 2010/11)
Helen earns £85,000 a year and has already paid £50,000 to her SIPP to use up her annual allowance for the tax year 2011/12. She received a large inheritance and would like to make a further pension contribution to use up unused annual allowance from previous years.

Helen’s history of pension funding for the previous three tax years and her carry forward calculation are as follows:

Tax year

Pension input amount

Unused allowance

Cumulative carry forward available

2008/09

£20,000

£30,000

£30,000

2009/10

£70,000

Nil

£30,000

2010/11

£15,000

£35,000

£65,000

The key point to note is that, although Helen’s contributions for 2009/10 were more than £50,000, the £20,000 excess doesn’t use up any of her unused allowance from 2008/09.

She decides to pay a further £35,000 to her SIPP, giving her a total pension input amount of £85,000 for tax year 2011/12 (the largest personal contribution she can obtain tax relief on). This will use up the £30,000 unused allowance from 2008/09 plus £5,000 of the unused allowance from 2010/11, leaving £30,000 of unused allowance from 2010/11 available for future years.

If it is not used by April 2012, then any unused allowance for the tax year 2008/9 is lost for good…

Contact Mike Palmer, Financial Services Manager for more information:
E: mike.palmer@laplayainsurance.com or T: 01223 200674

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