Tax year end presents a planning opportunity

Grant Blakey

Grant Blakey

The dust settled fairly quickly following what was an uneventful Autumn Budget 2018, especially from a pension and retirement planning point of view. 

This was very much welcome, and the absence of new rule changes will make planning for this tax year end a bit more straightforward for most clients and advisers than in previous tax years.

One consideration that does still need to be taken into account, for one last year, is the transitional measures for the 2015 to 2016 tax year in respect of the annual allowance. 

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While it is good to be waving goodbye to extra complexities, this one also presents a planning opportunity for individuals who were a member of a registered pension scheme during that period.

It is worth reminding ourselves how the transitional measures from 2015 to 2016 work ahead of this tax year end.

Unlike in 2018, the 2015 Summer Budget was eventful with then chancellor George Osborne announcing that pension input periods (PIP) for all pensions were to be aligned with the tax year from the start of the 2016 to 2017 tax year. 

This was a welcome simplification of the rules. However, he also announced a wrinkle for the 2015 to 2016 tax year in that it would be split into a ‘pre-alignment tax year’ and a ‘post-alignment tax year’, with the latter starting on the day after the Budget, July 9 2015. 

Pre- and post-alignment tax year

A summary of the dates, annual allowance and carry forward that applies to each is shown below:

 Start dateEnd dateAnnual AllowanceCarry Forward Available

*to post-alignment period only

The annual allowance for the pre-alignment tax year is £80,000, so as not to penalise the individuals who had contributed £40,000, closed their PIPs and contributed a further £40,000.

The annual allowance for the post-alignment tax year is actually nil.

However, any remaining pre-alignment allowance can be carried forward into the post-alignment tax year up to £40,000, not £80,000. Unused allowance from the post-alignment tax year can be carried forward to subsequent tax years.

Overall, this means some clients have (or had) an extra £40,000 allowance above what they might have expected.

Tax year end planning

The rules state that you can carry forward from the three previous tax years. Furthermore, there is a strict order in terms of which tax year’s allowance is used.

The current tax year’s allowance is used first, then you go back to the earliest of the three previous tax years. 

2015 to 2016 still counts as a single tax year in this respect, but only unused allowance still available from the post-alignment can still be used. 

This means there are two important planning points.

Firstly, 2018 to 2019 is the final tax year in which clients can take advantage of the extra £40,000 from 2015 to 2016. Clients will need to take action by April 5 2019 if they want to use their allowance from 2015 to 2016.

Secondly, in order to access their unused allowance from 2015 to 2016, clients will need to make contributions and accrual of at least £40,000 to use up all of this tax year’s allowance first.