Annual allowance

By Tolley
Personal_tax_img

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Annual allowance
  • Amount of the annual allowance
  • Exemption from the annual allowance rules
  • Pension input period
  • Calculation of pension input amounts
  • Carry forward of unused annual allowance
  • The annual allowance charge
  • What do you need to do?

This document also includes: tapering of annual allowance; Exemption from the annual allowance rules; Pension input period; Calculation of pension input amounts; Carry forward of unused annual allowance and annual allowance charge.

 

The maximum amount that an individual can build up in tax-relieved pension savings is limited in two ways:

  • first, the annual allowance limits the amount that can be paid into pensions and benefit from tax relief (or the value attributed to increases in scheme benefits for defined benefits pensions). Its operation is discussed below
  • second, the lifetime allowance limits the total tax-relieved value that can be accumulated into registered pension schemes. Its operation and the lifetime allowance charges that can arise are discussed in the Lifetime allowance guidance note

The annual allowance in relation to pension arrangements is the maximum amount:

  • a)by which a member’s benefits can increase in a pension input period (for defined benefit schemes), plus
  • b)that can be contributed to pension arrangements in a pension input period (for defined contribution or money purchase schemes)

The total of these figures is the pension input amount (see below).

If the pension input amount exceeds the annual allowance, there is a tax charge on the excess (the ‘annual allowance charge’) on the member.

FA 2004, s 227

See Example 1.

The annual allowance covers all contributions whether made by the member or any other person, for example, the member’s employer.

For the purposes of the annual allowance, the pension input amount is measured over the pension input period (see below). From 2016/17 onwards, the pension input period is aligned with the tax year. For earlier years (including the transitional year of 2015/16), care needs to be taken to check the pension input period rules.

Amount of the annual allowance

The annual allowance is £40,000 and has

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