Final reminder! Maximising pension annual allowance in 2015/16
Final reminder! Maximising pension annual allowance in 2015/16
Wed 30 Mar 2016
5 April sees the end of a significant opportunity to make highly worthwhile pension savings by taking advantage of:
• the doubled annual allowance for 2015/16; and
• unused allowances brought forward from the years 2012/13, 2013,14 and 2014/15.
2015/16 annual allowance
This year was split between two pension input periods (PIPs); the first of which ran from 6 April to 8 July 2015 and the second from 9 July 2015 to 5 April 2016. Only £40,000 could be used against pension contributions in the first period and a further £40,000 is available for the period ending on 5 April 2016, thus giving a maximum total annual allowance for the tax year 2015/16 of £80,000.
The reason for the double allowance is that until 9 July 2015 the PIP could end at any time in a year but from that date all PIPs have been aligned to a single year-end of 5 April. The additional £40,000 allowance was put in place to ensure that the change of dates would not cost any pension saver the chance to contribute at least £40,000 in 2015/16.
For example, if a PIP ended on 31 May, contributions in the year ended 31 May 2015 would normally have been tested against the annual allowance for 2015/16, but contributions in the period 1 June 2015- 8 July 2015 would then have fallen into a PIP ending on 31 May 2016, so would have been tested against the annual allowance for 2016/17.
The maximum possible relief for 2015/16 of £80,000 (ignoring any unused relief brought forward) , will only be achieved where someone has already saved £40,000 into their pension in the period 6 April 2015-8 July 2015. Nevertheless, everyone now has an additional £40,000 annual allowance for the remainder of this tax year, on top of pension savings already made in the pre-Budget part of the tax year.
Annual allowances brought forward
Unused pension annual allowances may be carried forward for up to three years and when unused allowances are used it is the earliest year’s allowance that is used first. Maximum allowances available for carry-forward if unused are:
2012/13 £50,000
2013/14 £50,000
2014/15 £40,000
Total £140,000
Total investment up to £220,000
Adding all the available allowances together means that a pension saver who invested £40,000 before 9 July 2015 can add another £40,000 for the current year and up to £140,000 due to unused relief brought forward.
Unused relief is only available to someone who was a member of a recognised pension scheme in the year in question but they don’t have to have made any contributions and all such schemes count including old employers’ schemes, retirement annuities and other schemes which may be lying dormant pending retirement.
Additional rate taxpayers’ relief to be restricted from 6 April 2016
Individuals whose adjusted income is £150,002 or more will have their annual allowance limit reduced by £1 for every £2 by which their income exceeds £150,000, i.e. the first year of restriction is 2016/17. Making pension contributions before 6 April may enable additional rate taxpayers to maximise income tax relief on pension investments.
Other pensions news
HMRC’s Pension Schemes Newsletter 77 contains a useful update, including changes announced in the Budget.
For pension tax relief, contributions to a SIPP must be money, not in-specie
The Upper Tribunal (UT) has overturned the First tier Tribunal’s (FTT’s) decision concerning the availability of pension contribution tax relief for a contribution of shares to a self-invested personal pension plan (SIPP) in the case of SIPPChoice. The FTT held that this could count as a contribution paid for the purposes of pension contribution tax […]
Tax charges on death of pension policyholder
The Taxation of Pensions Bill 2014 (TPB) will enact the tax changes enabling flexibility of pension draw-down. Changes were announced to the tax treatment of funds remaining in a personal pension scheme on the death of the member. Under current rules, any pay-out to the deceased’s beneficiaries is taxed at 55%. The Government is abolishing […]
A good budget for business, with more than one eye on a general election?
Today George Osborne delivered his fifth budget, and probably most important, of his tenure as Chancellor. In the run up to today, all the talk was about a Budget for business to maintain confidence in the economy with a specific focus on helping house-builders, exporters and reducing energy costs. With a general election only 14 […]
Pensions reform
Before the Budget we all thought we knew broadly where we were on pensions and ISAs. On pensions the new rules on lifetime limits were on everyone’s mind with the April 2014 reduction of the limit from £1.5 to £1.25m, and the need to consider fixed protection against the reduction. The expectation was that the […]
HMRC issues pensions flexibility guidance on interim measures
The most significant announcement in this year’s Budget was of greater flexibility on retirement for people with defined contribution pension schemes. It is no longer compulsory to purchase an annuity, and it will still be possible to take out 25% of the pension pot as a tax free lump sum. The main changes will come […]
Pension saving – guidance on individual protection 2014
HMRC have published updated guidance notes on individual protection (“IP2014”) from the pension lifetime charge. IP2014 was announced in Budget 2013 alongside the reduction in the lifetime allowance from £1.5m to £1.25m. Most individuals with more than £1.25m of pension saving on 5 April 2014 are entitled to apply for IP2014. Applying for IP2014 gives the […]
Annual pension allowance if input period includes 14 October 2010
The annual pension contribution limit operates by reference to pension input periods (PIPs). Each pension fund has its own PIP and all contributions within a PIP are treated as made in the year in which the PIP ends for the purposes of the annual limit charge. On 14 October 2010 the Government announced the rules […]
Pensions annual allowance: new HMRC calculator
The annual pension allowance was reduced from £50k to £40k as from 6 April 2014 but where the allowances were not fully used in 2011/12, 2012/13 or 2013/14 the relief brought forward is the actual unused remainder of the £50k allowance, always using the earliest available allowance up first. So for example, an individual who […]
Auto-enrolment clock is ticking
Every employer must automatically enrol workers into a workplace pension scheme who: are not already in one are aged between 22 and State Pension age earn more than £10,000 a year work in the UK The Pensions Regulator has now started contacting small and micro-sized employers (those with less than 50 employees).
Freedom and choice in pensions – update on Government thinking
HM Treasury have issued a paper giving an update on aspects of the radical reform to the pension tax rules, announced in the Budget that will take effect in April 2015. It also covers ramifications such as the way that scheme members and schemes will receive fair unbiased advice.
Draft Taxation of Pensions Bill published
The legislation to implement the fundamental change to the tax rules for pensions will be a one-off separate act of Parliament, not in a finance act. The new rules have to be enacted well before they take effect on 6 April 2015, hence the Government have been forced to take this unusual step of the […]
Pensions – Annual Allowance Statements
HMRC has announced that “Pension providers will soon be sending annual allowance pension statements for the 2013 to 2014 tax year to all pension scheme members contributing more than £40,000 per year to a pension scheme.
Make the most of pension reliefs now – further changes likely after general election
Politicians in both parties which make up the coalition have announced proposals to change tax aspects of pensions.
Autumn statement 2014: more than an awards ceremony?
George Osborne delivers the Coalition’s final Autumn Statement in the House of Commons on 3 December. We reckon he’ll use this opportunity to remind us of the economic achievements of the Coalition, but will there be carrots promising reductions in future tax bills? By good fortune or good judgment, the UK’s economic performance is top […]
Budget 2020 – Implications of today’s budget for private clients
The Chancellor’s Budget announcement today contained a raft of giveaways for business but how will it affect you personally? Currently tax relief on pension contributions is limited to the annual allowance of £40,000. However, if your ‘threshold income’ exceeds £110,000 and ‘adjusted income’ (i.e. including employer pension contributions) exceeds £150,000, the annual allowance starts to […]
Tax on widows’ annuities axed
The Chancellor today announced that he will abolish tax on annuity payments that are made to spouses after their partner has died. This applies to married pensioners. Currently surviving partners of spouses with joint life or guaranteed annuities must pay tax on the income payments they receive from a joint life annuity. Typically, this is […]
Pension Contributions to be Cut for High Earners
Pensions were once again prominent in the Budget with news that the Annual Allowance will undergo yet another revamp and that the future of pensions tax relief will come under the spotlight in a Government Green Paper. From April 2016 the government will introduce a taper to the Annual Allowance for those with adjusted annual […]
PIP-PIP! double allowance for some in 2015/16
New rules are being introduced to align pension input periods (PIPs) with the tax year by April 2016. The transitional rules to enable this effectively mean that 2015/16 is being split into two, potentially allowing high earners an additional opportunity to augment their pension funding now. The first new PIP will be from 9 July 2015 […]
Pensions in the draft Finance Bill 2016: a brief summary
Reduction of pensions lifetime allowance As announced in the March Budget the lifetime allowance (LTA) will be reduced from £1.25m to £1m, with effect from 6 April 2016. Protection arrangements will apply. The LTA will be indexed in line with the CPI in 2018/19 and subsequent years, with the allowance always being rounded up to […]
Pensions: maximise higher rate relief before the rules change- yet again!
From 6 April 2016 pension input periods (PIPs) will be aligned with the tax year but the change was actually brought into effect immediately after the 2015 Summer Budget with the result that 2015/16 was effectively split into two, allowing some pension contributors the opportunity to augment their pension funding by an extra £40,000. This […]
Minor pension changes see relaxation of rules for seriously ill and young
A raft of changes have been made to the rules around pension flexibility to ensure people who are seriously ill and the young are able to access their pension and are not unfairly penalised with large tax bills. The Budget has announced rule changes to remedy anomalies and injustices created unintentionally by pensions freedom. The […]
Pension annuity changes mean you can lump it and like it
The March 2015 Budget contained the announcement that “The government will legislate from April 2016 to allow people who are already receiving income from an annuity to agree with their annuity provider to assign their annuity income to a third party in exchange for a lump sum or an alternative retirement product.” This created the […]
Pension flexibility remains, but the opportunity to make tax relievable contributions is set to reduce for those who have accessed their benefits in this way
In the Autumn Statement, Philip Hammond announced proposals for the pensions Money Purchase Annual Allowance to reduce from £10,000 to £4,000 per annum, with effect from April 2017. Since April 2015, pension savers have enjoyed increased freedom of choice in how they access their pension savings. This has given them the opportunity to structure their […]
Pension advice £500 tax and penalty-free drawdown from 6 April 2017
From 6 April 2017 pension scheme members will have the freedom to make withdrawals of up to £500 from their pension pots to pay for advice about withdrawing and investing their pension funds. The £500 will not be taxed on withdrawal from the pension pot, regardless of the individual’s income and the individual will be […]
Pension savings escape Autumn Budget scare
Despite much speculation over recent weeks, surrounding the future of pension tax relief legislation, savers will have been relieved to hear there was no mention of any such change in the Chancellor’s Autumn Budget speech. Rumours had been rife that there could be radical reforms ahead. There had been suggestions of the introduction of a […]
Whether relief is available for a pension contribution made in the form of assets in satisfaction of a debt
The First tier Tribunal has held that an agreement to make a contribution to a self-invested pension plan (SIPP) created a debt which could be satisfied by the transfer of an asset. As a result the contribution qualified for relief from income tax. Background The particular SIPP conditions in this case included terms that provided […]
Proposed additional flexibility in NHS pension scheme
The Government has recently consulted on ways to increase flexibility in the accrual of NHS pension schemes for senior clinicians to help them to avoid or manage pensions tax charges. What’s the problem? Changes to the pensions tax regime since 2010 are causing significant financial concerns to doctors who are either exceeding their annual or lifetime […]
Are you caught by the pensions lifetime allowance cut?
April 2014 sees the pension lifetime allowance (LTA) cut from £1.5 Million to £1.25M. HMRC estimate that 30,000 people will be immediately affected by the cut and the consequences of breaking the limit are significant, a potential 55% tax charge on a part of your pension funds. The lifetime allowance (LTA) is the maximum amount […]
Comments