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Technical View

Time is running out – things to consider before 6 April

In this month’s Technical View, we take a look at a number of opportunities that your clients may be able to take advantage of before the new tax year.   

Carry forward from 2013/14

First up is an opportunity to carry forward the last remaining £50,000 pension savings annual allowance.  All those who were members of a registered pension scheme in the 2013/14 tax year will have had an annual allowance of £50,000 for that year.  The annual allowance reduced to £40,000 the following tax year (2014/15) and since 6th April 2016 and the introduction of the taper, some will have an annual allowance as low as £10,000.

As long as the individual has enough relevant UK (taxable) income to support the contribution, they could maximise this year’s contributions of up to £40,000 and pay up to a further £50,000 carrying forward the 2013/14 allowance plus carry forward from the two subsequent tax years.

Example:

Najma is 42 and employed.  Her taxable earnings for 2016/17 tax year are £110,000 so she is not currently subject to the tapered annual allowance.  She has been a member of her workplace DC scheme since January 2012.  Najma’s total pension savings in the past 4 years are as follows:

Pension savings             Annual allowance (AA)                            AA remaining for carry forward
2016/17 – £15,000         £40,000                                                       £25,000
2015/16 – £15,000         £80,000*                                                     £25,000
(paid in post-alignment tax year)
2014/15 – £10,000         £40,000                                                       £30,000
2013/14 – £10,000         £50,000                                                       £40,000

*Transitional provisions applied for the 2015/16 tax year with a maximum £80,000 over 2 mini tax years, with £40,000 potentially available to carry forward from the post-alignment tax year.

If Najma wants to make the most of her available allowance, as she has already made a contribution of £15,000 she can make further pension savings of up to £95,000 gross in the 2016/17 tax year.  £25,000 remaining in the current tax year must be used up first, then starting at the oldest available year, she is able to fully use allowances for the current year and 2013/14 & 2014/15 (£25,000+£40,000+£30,000=£95,000).  Next year, as long as she is not subject to the taper, she will have another £40,000 for 2017/18 plus the £25,000 remaining from 2015/16.  In order to take advantage of this, Najma will need to use the current year and 2013/14 remaining allowances before 06/04/2017.

If Najma’s employer is willing to make a contribution then upto £120,000 may be paid in the 2016/17 tax year, thereby fully using her available carry forward annual allowance.  Although Najma’s contributions are restricted to the level of her relevant UK earnings, her employer’s contributions are not. 
Najma has also managed to restore her personal allowance by making a contribution of £15,000 in 2016/17 and thereby reducing her income to under £100,000.

Money Purchase Annual Allowance

If an individual has flexibly accessed their pension benefits, they will be subject to the Money Purchase Annual Allowance (MPAA) of £10,000.  This means that they will no longer be able to use carry forward on their DC pension savings.  They also cannot carry forward any unused MPAA.  It’s a case of use it or lose it.  This makes it even more important to ensure that those who can, are maximising their pension savings.  

Where the same individual also has one or more DB fund(s), they can still use carry forward for their DB pension pot(s), and their DB annual allowance will be adjusted to £30,000 (£40,000 – MPAA). 

In the Autumn Statement, the Chancellor announced that the MPAA will be reducing to £4,000 from 06/04/2017.  A consultation has been issued in order to ascertain whether anyone will be particularly disadvantaged by this change, but it doesn’t seem likely that there will be a U-turn on this particular decision like the one we saw with the secondary annuity market.  If you have clients who are subject to the MPAA, it would be prudent to ensure that they have maximised their pension savings for this tax year. 

For those wishing to read the consultation and respond on behalf of themselves or others who may be adversely affected, you can find more information.

Individual Protection 2014

5th April 2017 is also the application deadline for Individual Protection 2014 (IP14).  If you have clients who had pension savings of £1.25m or above on 05/04/2014 and do not already have Primary Protection, they could be eligible to apply.  All applications are now done online via the HMRC website and must be received by HMRC by 05/04/2017.

IP14 can be applied for by anyone on an individual’s behalf.  This can even be done by personal representatives where a qualifying individual dies before 05/04/2017 and has not yet applied.

For more information on the requirements and applying for IP14.

Class 3A Contributions

Finally, the opportunity for those who reached State Pension Age prior to 6 April 2016 to make Class 3A National Insurance Contributions expires on 5th April 2017 (or 30 days from the time HMRC respond to a request made before 05/04/2017).  These contributions can increase an individual’s state pension by up to £25 per week, which is inflation linked and has a spouse’s pension, and could be of particular benefit to the self-employed and those with gaps in their NI contribution history.

We hope this helps you in planning ahead for your clients this year, if you have any questions please get in touch with our technical team.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.