Tax relief is given in the tax year in which the contribution is made, not in the year the annual allowance is carried forward from, nor the pension input period it falls into. So for additional rate taxpayers paying 50%, the reduction to 45% will mean a reduction in tax relief if a contribution is delayed until the 2013/14 tax year.
Carrying forward three whole years of full annual allowance would require earnings in excess of £200,000 to be eligible to reclaim all the relief (to use carry forward the client must have sufficient earnings in that year to support the total personal contributions). This clearly limits the benefit to additional rate tax payers and the reduction to 45% tax will have a significant negative impact on their pension tax relief.
Why Act Now?
It is clear that, with the reduction in the top rate of tax and then the reduction in the maximum annual pension contribution in the tax year 2014-15, a delay in contributing will result in a significant loss of eligible tax relief for the highest earners.
In our experience, it can take up to 4 weeks for full, accurate data to be collated from various pension administrators before a carry forward calculation can be finalised. That data can include pension input amounts from both money purchase and active membership of a defined benefit scheme, together with confirming Pension Input Periods.
Retirement planning is one of Fiducia’s specialisms, and we understand the complexities compounded by the constant stream of rule changes and therefore we can assist in ensuring the right decisions are made.
© Fiducia Wealth Management Limited 2013