Carry forward will be abolished with effect from 6 April 2001 in respect of any scheme that is subject to the new defined contribution (DC) tax regime. Although members of the DC tax regime will be able to contribute up to £3,600 per annum at any time while they are resident and ordinarily resident in the UK and will be able to take advantage of the new proposed provision which will enable them to continue contributions in excess of £3,600 per annum for up to five years after they cease to have relevant earnings, these provisions are by no means as flexible as the present carry forward rules. Clients will therefore be best advised to take full advantage of carry forward while they are able to.
It should be remembered that the new DC tax regime will not be extended to section 226 policies, which will retain their existing carry forward rules. Clients with section 226 arrangements may therefore be best advised to retain such policies as these may well give far greater opportunities for tax planning in the future.
With the reduction in the basic rate of tax from 23% to 22% in tax year 2000/2001 it should be remembered that a basic rate taxpayer will still be able to obtain relief at 23% by paying a personal pension/s226 contribution in tax year 2000/2001 and making an election to carry it back to the 1999/2000 tax year. Such election must be made by no later than 31 January 2002.