If you have underused your pensions allowances for the previous three tax years you can carry these forward and use them now. With this in mind, one of our readers asks:
Is it possible to nominate which year the potential contributions may be set against so as to gain maximum relief on those contributions, in that they are set against the actual higher tax paid, in my case 40 per cent? Or will the relief be actually granted in the current 2015-16 tax year?
Gary Smith, financial planner at Tilney Bestinvest, says:
"While it is possible to carry forward any unused annual allowances from the previous three tax years, you would only be able to claim tax relief for the tax year in which the contribution is made. So you would not be able to nominate the allocation of the contribution to maximise 40 per cent tax relief.
"And in order to carry forward any unused allowances, you must first fully use your current-tax-year annual allowance, with any subsequent carry forward taken from the earliest available tax year."
As an example, if an investor made the following contributions and had the following unused allowances, to carry forward any of the unused allowances they would first need to contribute a further £30,000 to maximise their current (2015-16) tax year allowance.
| Tax year | Pension input (£) | Annual allowance (£) | Unused allowance (£) |
|---|---|---|---|
| 2012-13 | 30,000 | 50,000 | 20,000 |
| 2013-14 | 20,000 | 50,000 | 30,000 |
| 2014-15 | 25,000 | 40,000 | 15,000 |
| 2015-16 | 10,000 | 40,000 | 30,000 |
Source: Tilney Bestinvest
Thereafter a total of:
■ £60,000 could be contributed during the current tax year, as this would use this year's £40,000 allowance and the £20,000 unused allowance from 2012-13; or
■ £90,000 could be contributed during the current tax year, as this would use this year's £40,000 allowance and the £50,000 unused allowances from 2012-13 and 2013-14; or
■ £105,000 could be contributed during the current tax year, as this would use this year's £40,000 allowance and the £65,000 unused allowances from 2012-13, 2013-14 and 2014-15.
Mr Smith adds: "Any personal pension payments made cannot exceed an individual's earnings for the current tax year. So, if they, for example, earned £75,000 this would represent the maximum contribution amount - irrespective of their carry forward allowances."
It is also important to make sure you do not breach the pensions lifetime contribution limit, which for this tax year stands at £1.25m.
