Go back to go forward

Published by Guy Hilton on 24 March 2022

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As we come to the end of the tax year, many of you will be thinking of how you can take advantage of various allowances – to boost your savings and reduce your tax bill?

Focusing specifically on pensions, one way in which you could boost your retirement savings is by using a method called carry forward.

As a brief recap, the maximum pension contribution, on which tax relief can be claimed in a tax year, is currently £40,000 gross – please be aware this includes both personal and employer contributions.

This limit can also be reduced if your total adjusted income, from all sources, is more than £240,000 in the same tax year.

You can receive tax relief on any pension contributions you make, up to 100% of your salary, capped at £40,000 gross for 2021/22.

What is carry forward?

Pension carry forward allows you to make use of any unused allowance from up to the three previous tax years, using the earliest unused relief first. To qualify you must have held a qualifying pension plan in the years from which you are looking to carry forward unused relief.

This could mean that you may be able to make a pension contribution of up to £160,000 (including tax relief) in the current tax year.

How does it work?

You can carry forward unused annual allowances from the three previous tax years, starting with the earliest which currently could be 2018/19. This is subject to your earnings in those tax years as any contribution cannot exceed 100% of your salary in the tax year in question. Alternatively, your employer/company could contribute instead – this will subject to the wholly & exclusively rule.

As an example of this allowance working in practice, please see below:

Tax Year Annual Allowance Contributions Unused Allowance
2018/19 £40,000 £30,000 £10,000
2019/20 £40,000 £20,000 £20,000
2020/21 £40,000 £25,000 £15,000
2021/22 £40,000 £30,000 £10,000

In this example the total unused allowance is £55,000. Subject to the above criteria being met in terms of income levels in the different tax years and personal circumstances, this sum may be able to be added to the pension policy including tax relief.

To discuss your own personal circumstances and allowances and how you may be able to make best use of these please contact Kreston Reeves Financial Planning, part of the Craven Street Wealth group on +44 (0)330 124 1399 or complete our online enquiry form.

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice.

You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation.

Kreston Reeves Financial Planning Limited, Independent Financial Advisers. Authorised and regulated by the Financial Conduct Authority.

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