31/01/2012

Look back to plan ahead

Carry forward is a new rule introduced from tax year 2011/2012 onwards that could allow your clients to contribute up to £200,000 into their pension tax efficiently before 6 April 2012 by rolling up unused allowance from previous years.

Carry forward

From 6 April 2011 the annual allowance (AA) for pensions was reduced from £255,000 to £50,000. To compensate for this change, HMRC also introduced a new provision called carry forward, which allows clients to rollover unused pension allowance from up to to three previous tax years. It means your clients could contribute up to £200,000 into their pension in tax year 2011/2012 without incurring any tax charges.

Who should I be talking to?

• High earners whose pension contributions have previously been limited by the anti-forestalling rules.
• Clients near retirement wishing to boost their pension fund.
• Those opting for fixed protection before the lifetime allowance reduces to £1.5m from 6 April 2012 with one final opportunity to make contributions prior to that date.
• Anyone receiving a large bonus or redundancy payment.
• Self-employed people who have earned significantly more than usual this tax year.
• Company directors seeking to reduce their corporation tax bill.
• Defined benefit scheme members who receive a large salary increase.

How it works

• To qualify for carry forward your clients must first use up their pension allowance for the tax year 2011/2012.
• If your clients have not been a member of a registered pension scheme in any of the last three years they will not have unused annual allowance to carry forward from that year.
• To work out how much unused allowance your client can carry forward, a retrospective AA of £50,000 is applied to tax years 2008/2009, 2009/2010 and 2010/2011.
• If they have contributed less than £50,000 in any of these years, some or all of that leftover allowance can be carried forward cumulatively into tax year 2011/2012.

Act before 5 April 2012

The last opportunity for your clients to use up their carry forward allowance for the tax year 2008/2009 is 5 April 2012 so you must start planning now if you want to help them make the most of the new rules. Download the Carry Forward Pensions Profile to read examples of how carry forward can be used.

Look out for new emails in our Tax Plan 2011/2012 adviser support series over the coming weeks as our pensions technical and tax and trusts team continue to share their wisdom to help you maximise your business opportunities.

In the meantime, if you have a specific question about the opportunities covered please speak to your usual Legal & General representative.