The Government has relaxed pensions tax rules to allow investors who exceed the annual allowance of £50,000 to make higher contributions from previous tax years using ‘carry forward’.
Under HM Revenue & Customs rules, investors can ‘carry forward’ unused pension contributions from the previous three tax years to avoid paying an annual allowance charge on contributions of more than £50,000 in the current tax year.
Under the previous interpretation of the rules, anyone who made pension contributions totalling more than £50,000 in 2009/10 or 2010/11 would use up some of their annual allowance from previous tax years, reducing the amount they can carry forward. HMRC now says the annual allowance from earlier tax years will not be used up.
A J Bell technical marketing manager Gareth James says: “Using the most extreme example, an investor with contributions totalling £150,000 in 2010/11 would not have been able to make use of carry forward in respect of either the 2008/09 and 2009/10 tax years.
“The carry forward option is now available to them meaning they could potentially pay in up to £100,000 in carry forward contributions in the current tax year.”
The Advice Lab director Fraser Grant says: “Thankfully this change is an improvement for savers.The timing of the announcement could have been better given that the Chancellor will be making his autumn statement tomorrow.”