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Carry Forward on Personal Pensions
Julia Bassett looks at the UK Government's decision to abolish the carry forward provision on tax allowances for contributions to Personal Pension policies.
From 6 April 2001 the Government will no longer allow Personal Pension holders to use the carry forward facility to pay contributions in a current tax year to utilise unused tax relief from a previous tax year. Until then it is still possible for people who have paid the maximum they can in the current tax year but have not paid the maximum contributions in any one of the previous six tax years to use "carry forward" before it disappears.
By way of example: John Smith is 45. He is allowed tax relief on contribution to personal pensions up to 20% of earnings, subject to the earning cap. His contribution record is as follows:
| Tax Year |
Earnings (limited to cap) |
20% contribution limit |
Actual contribution |
Unused relief |
| 1994/95 |
£76,800 |
£15,360 |
£5,000 |
£10,360 |
| 1995/96 |
£78,600 |
£15,720 |
£5,500 |
£10,220 |
| 1996/97 |
£82,200 |
£16,440 |
£6,000 |
£10,440 |
| 1997/98 |
£84,000 |
£16,800 |
£6,000 |
£10,800 |
| 1998/99 |
£87,600 |
£17,520 |
£6,500 |
£11,020 |
| 1999/2000 |
£90,600 |
£18,120 |
£6,500 |
£11,620 |
| Total |
|
|
|
£64,460 |
So John Smith could pay a contribution as high as £64,460 by 5th April. This would then reduce his income tax bill by £25,784 (namely 40%).
Between 6 April 2001 to 31 January 2002
It will still be possible to utilise the carry forward facility between 6 April 2001 and 31 January 2002 but only if you also elect to carry back the contribution to 2000-2001 tax year. In this case you could still pay contributions going back to 1994/1995 as in the above example. If you wish to utilise this option you should speak to your accountant.
What to do next
If you would like to take advantage of this opportunity by using the BWSIPP, telephone Julia Bassett on 01242 544300 to arrange a meeting to complete the various paperwork to establish a BWSIPP.
Julia Bassett, October 2000.