New Rules on Pension Contributions 2011/12 Year onwards
The last couple of years has been a minefield for working out allowable pensions contributions that will receive the relevant tax relief.
This has been simplified somewhat and can be distilled into 2 basic rules that will apply to:
Individuals
From 2011/12 onwards an individual can contribute up to £50k gross per year into a pension and get tax relief, provided they have income to justify the contribution i.e. Someone earning £30,000 per year can contribute £30,000 into a pension scheme. Someone earning £70,000 can contribute £50,000 but see below
Carry Forward of Unused Allowance
Given the confusion of the previous few years, the government has conceded that many people just haven’t bothered with pension contributions for fear of getting a calculation wrong so new rules for the 2011/12 tax year states that they will allow you to carry forward allowances not used in the previous three years. The annual allowance is deemed to be £50,000 for the 08/09, 09/10 and 10/11 tax years irrespective of the previous rules in play at the time.
The easiest way to understand the carry forward rules is by way of example
Helena earns £150,000 a year and has already paid £50,000 to her SIPP to use up her annual allowance for the 11/12 year.
She would like to make a further pension contribution to use up unused allowance from previous years.
Here is her contribution history
| Tax Year | Amount Contributed | Unused Allowance | Cumulative Carry Forward Available |
| 08/09 | £10,000 | £40,000 | £40,000 |
| 09/10 | £70,000 | £0 | £40,000 |
| 10/11 | £15,000 | £35,000 | £75,000 |
She could contribute a further £75,000 in this tax year to fully use up her unused previous allowances.
Limited Companies
It is often sensible to make a pension contribution straight from the business into a pension scheme as it avoids national insurance contributions.
This will qualify as a deductible business expense as long as the pension contribution is made “wholly and exclusively for the purposes of the trade”
In plain English this means that as long as the pension holders remuneration package when taking into account salary, dividends and pension contribution can be seen as commensurate with the job they are doing for the business then it will likely attract the corporation tax deduction. This is however a question of fact so a discussion about your own personal circumstances would be sensible.
If you would like more help and advice on your pension situation, just pick up the phone and call us on 01249 712074. We'd be delighted to speak to you and pass you the details of our trusted wealth management advisors.