Last chance to carry forward

Assuming there are no dramatic changes in the Budget on 21st March, the 5th of April will represent the last chance for investors to carry forward any unused annual allowance from the 2008/09 tax year for their pension contributions.

The 2011/12 tax year was the first full tax year where the £50,000 annual allowance applied to pension contributions.

This was combined with the ability to carry forward any unused annual allowance from the previous three tax years – 2010/11, 2009/10 and 2008/09.

This ability to carry forward unused annual allowance is limited to the previous three tax years from the current tax year, so from 6th April 2012 the ability to use unused allowance from 2008/09 will disappear.

If you are considering making large pension contributions, particularly to take advantage of 40% or 50% income tax relief, you also need to be aware of the pension input period applied to your pension scheme.

Depending on the pension input period for your scheme, it is possible that you are already making pension contributions in respect of the annual allowance for the 2012/13 tax year and have therefore lost the ability to carry forward unused annual allowance from 2008/09.

Some pension schemes allow you to elect to change the pension input period, closing it in the current tax year and therefore taking advantage of unused annual allowance from 2008/09.

An alternative to consider is to establish a new pension scheme which will automatically have a pension input period ending on the next 5th April, which (if action is taken soon) will be 5th April 2012.

Because carrying forward any unused annual allowance and pension input periods can be very complex, we urge investors to seek professional independent financial advice at the earliest opportunity to understand how these rules impact upon them.

Photo credit: Flickr/Earls37a