Tax  

What is the carry on about carry forward?

  • Describe what carry forward is.
  • List the rules governing how carry forward works.
  • Identify the split into two mini tax years and how to inform HMRC.
CPD
Approx.30min

However, if the person previously had a UK pension plan which has been transferred to a Qualifying Recognised Overseas Pension Scheme, or Qrops, so that they no longer have any funds left in a UK pension plan, then they can only carry forward from tax years up to the date of the transfer to the Qrops.

Case study

Alan’s only UK pension, which started in 2010, was transferred to a Qrops on July 1 2016.

In 2018 to 2019 he is able to carry forward from 2015 to 2016 and 2016 to 2017, but not from 2017 to 2018.

With the changes and transitional provisions applying in 2015 to 2016, here is further guidance on the effect this has on carry forward.

Situation in 2015 to 2016

The tax year split into two mini tax years.

  1. The pre-alignment tax year (April 6 to July 8 2015) – annual allowance £80,000, to offset against contributions made in Pips ending between these dates. If, before the Budget on July 8, the pension plan did not have a Pip aligned with the tax year, then it is not just a case of considering what pension funding/contributions were made between April 6 and July 8 – the relevant period runs from the start date of the Pip before April 6 2015.

For example, Anna has a PPP which, before the Budget, had Pips running from June 1 to May 31 each year.

The contributions that must be assessed against the £80,000 annual allowance are those made between June 1 2014 and July 8 2015 as she had two Pips ending in the pre-alignment tax year (June 1 2014 to May 31 2015 and June 1 2015 to July 8 2015).

2. Post-alignment tax year (July 9 2015 to April 5 2016), annual allowance zero, but any of the £80,000 not used in the pre-alignment tax year (as per the above) can be used in the post-alignment tax year but subject to a maximum of £40,000.

For example, David had pension funding totalling £30,000 in the pre-alignment tax year. £80,000 - £30,000 = £50,000 which must be capped at £40,000. 

So he has £40,000 to use in the post-alignment tax year (plus any carry forward available from 2012 to 2013, 2013 to 2014 and 2014 to 2015).

Kate had £60,000 of funding in the pre-alignment tax year. £80,000 - £60,000 = £20,000 to use in the post-alignment tax year (plus carry forward as before).

In these examples, it is any part of the amount that could be used in the post-alignment tax year (£40,000 for David and £20,000 for Kate) but that is not used, that is available for carry forward to future years.

Do not forget that any unused annual allowance from 2015 to 2016 must be used before the tax year end on April 5.

Maximum that can be carried forward from 2015 to 2016 to future tax years

The amount available to carry forward from 2015 to 2016 to future tax years is the amount of annual allowance that could have been carried forward from the pre-alignment tax year to the post-alignment tax year less any premiums paid in the post-alignment tax year.

Amount of pension funding in PIPs ending in the pre-alignment tax yearAmount of the £80k annual allowance available for use in the post-alignment tax yearAmount of pension funding in the post-alignment tax yearAmount available to carry forward from 2015/16 to future tax years
£0£40,000£30,000£10,000
£20,000£40,000£40,000£0
£30,000£40,000£20,000£20,000
£40,000£40,000£0£40,000
£50,000£30,000£20,000£10,000
£60,000£20,000£5,000£15,000
£70,000£10,000£0£10,000
£80,0000£0£0

Carry forward and tax relief

If unused annual allowance is being carried forward, the usual tax relief rules still apply to any contributions made.

Tax relief on employer contributions is subject to the usual wholly and exclusively test, and tax relief on personal contributions is limited to 100 per cent of the individual's relevant UK earnings for the tax year in which the contributions are actually paid (or £3,600 if greater).

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. According to the author, carry forward mark two was brought back in its current format in which tax year?

  2. "There is no need for the individual to have had any relevant UK earnings in the tax years being carried forward from." True or false?

  3. For tax years 2008 to 2009 to 2010 to 2011 the annual allowance was deemed to be how much for carry forward purposes?

  4. The post-alignment tax year is from when to when?

  5. According to the author, tax relief on employer contributions is subject to what test?

  6. The author suggests what should always be kept in case pension savings exceed the annual allowance in a subsequent year?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Describe what carry forward is.
  • List the rules governing how carry forward works.
  • Identify the split into two mini tax years and how to inform HMRC.

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