Making use of carry-forward

[vand]

Hi folk, I'm considering making use of my pension carry-forward and was hoping if someone can confirm if I have this right...

I managed to fully use my annual allowance in 2018-19, and will do likewise this year, and according to the unused allowance calculator (https://www.gov.uk/guidance/check-if-you-have-unused-annual-allowances-on-your-pension-savings) I have 34k of allowance that I can still make use of, presumably from 2017-18 when I only put in £6k.

I can confirm that I've been a member of the scheme for 10 years+, so that should qualify me for the full 3 years' of carry forward, but I also understand that I can't contribute more than my annual salary in any one year, so if say I make £50k this year, I can put £40k in to fully use this year's allowance, and then up to an additional £10k to use from my carry-forward?

Lastly, do I need to explicitly declare anywhere that I've contributed >£40k in one year and made use of carry-forward?

[SpreadsheetMan]

Hi folk, I'm considering making use of my pension carry-forward and was hoping if someone can confirm if I have this right...

I managed to fully use my annual allowance in 2018-19, and will do likewise this year, and according to the unused allowance calculator (https://www.gov.uk/guidance/check-if-you-have-unused-annual-allowances-on-your-pension-savings) I have 34k of allowance that I can still make use of, presumably from 2017-18 when I only put in £6k.

I can confirm that I've been a member of the scheme for 10 years+, so that should qualify me for the full 3 years' of carry forward, but I also understand that I can't contribute more than my annual salary in any one year, so if say I make £50k this year, I can put £40k in to fully use this year's allowance, and then up to an additional £10k to use from my carry-forward?

Lastly, do I need to explicitly declare anywhere that I've contributed >£40k in one year and made use of carry-forward?

Yes, you can do that £40k+£10k (note that you are actually contributing £32k and £8k and the balance comes direct from HMRC as tax relief). You could do the same next year too provided some of the tax relief is still within the 3 year window.

You don't need to explicitly declare it unless you are already submitting a tax return.

[frugledoc]

You need to go back 7 years to calculate your full carry forward as the last of the 3 years includes any carry from the 3 years before it.

Also 2015 had a double allowance due.

HMRC has a carry forward calculator and don’t forget the minefield of tapering if it applies.

[PhilB]

You need to go back 7 years to calculate your full carry forward as the last of the 3 years includes any carry from the 3 years before it.

Also 2015 had a double allowance due.

HMRC has a carry forward calculator and don’t forget the minefield of tapering if it applies.

Do you have a source for that as it is contrary to anything I've ever seen on the subject - eg from the pensions advisory service:
"If a particular tax year’s unused annual allowance is not fully used, it can only be carried forward for up to three years, after which it is lost. "
2015/16 had a kind of double allowance for current inputs due to the alignment of PIPs eith tax year's , but no extra carry forward.
https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/carry-forward-in-the-2015-16-transitional-year/

[frugledoc]

You need to go back 7 years to calculate your full carry forward as the last of the 3 years includes any carry from the 3 years before it.

Also 2015 had a double allowance due.

HMRC has a carry forward calculator and don’t forget the minefield of tapering if it applies.

Do you have a source for that as it is contrary to anything I've ever seen on the subject - eg from the pensions advisory service:
"If a particular tax year’s unused annual allowance is not fully used, it can only be carried forward for up to three years, after which it is lost. "
2015/16 had a kind of double allowance for current inputs due to the alignment of PIPs eith tax year's , but no extra carry forward.
https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/carry-forward-in-the-2015-16-transitional-year/

7 years is what the HMRC annual allowance calculator uses.  The last of the 7 years only count to the last if the 3 most recent years

https://www.tax.service.gov.uk/pension-annual-allowance-calculator

[vand]

Yes, I did the calculator and it allowed me to put in the previous 10 years' worth of contributions. I don't know why it wants that much history, but I'm aware that the AA and taper rules are quite recent.

I plugged in 40k in the current year 2019-20 as this is what I am planning, and the calculator came back and said that I had 34k carry forward still available, so I presume that the 3 year rule must actually be for current year and the previous 2 years.

In reality I won't be able to make full use of carry forward as I'm restricted by my annual salary

On a sidenote, even though it doesn't affect me, I think the taper relief rules are one of the most outrageous and unfair features of our current tax code. A classic example of screwing over higher earners with no adjustments for inflation over time

[frugledoc]

Yes, I did the calculator and it allowed me to put in the previous 10 years' worth of contributions. I don't know why it wants that much history, but I'm aware that the AA and taper rules are quite recent.

I plugged in 40k in the current year 2019-20 as this is what I am planning, and the calculator came back and said that I had 34k carry forward still available, so I presume that the 3 year rule must actually be for current year and the previous 2 years.

In reality I won't be able to make full use of carry forward as I'm restricted by my annual salary

On a sidenote, even though it doesn't affect me, I think the taper relief rules are one of the most outrageous and unfair features of our current tax code. A classic example of screwing over higher earners with no adjustments for inflation over time

Taper rule will probably have to be scrapped.

I'm a NHS consultant and am personally seeing the severe impact it is having on NHS services as doctors are not taking on additional work at weekends and evenings because of taper.  This is causing waiting lists to rise, with little to no prospect of more doctors being trained to compensate.

Consultants are the largest group to be affected by the taper, so part of me thinks it is a Tory ploy to forward their goal of privatising the NHS.

Not to worry, Labour will save the day, god help us!

Edited: as a positive side effect of the taper tax, I have reduced my hours from 5 days to 4 days a week, and have been enjoying 3 day weekends since the start of this tax year. Previously I would do 2 lists on a Friday, now I take the day off and have fun. 

[PhilB]

You need to go back 7 years to calculate your full carry forward as the last of the 3 years includes any carry from the 3 years before it.

Also 2015 had a double allowance due.

HMRC has a carry forward calculator and don’t forget the minefield of tapering if it applies.

Do you have a source for that as it is contrary to anything I've ever seen on the subject - eg from the pensions advisory service:
"If a particular tax year’s unused annual allowance is not fully used, it can only be carried forward for up to three years, after which it is lost. "
2015/16 had a kind of double allowance for current inputs due to the alignment of PIPs eith tax year's , but no extra carry forward.
https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/carry-forward-in-the-2015-16-transitional-year/

7 years is what the HMRC annual allowance calculator uses.  The last of the 7 years only count to the last if the 3 most recent years

https://www.tax.service.gov.uk/pension-annual-allowance-calculator

That calculator is in serious need of some work!  It cheerfully encourages you to put in loads of useless information then finishes by giving you an answer which is going to confuse many users.
On the plus side, it does actually correctly apply the rules which are that only unused allowance from the previous 3 tax years is available for carry forward.  Any years before that are completely irrelevant.  (I can only think that they leave them in the tool to let people work out if they paid too much into pensions in previous tax years).  They then give the confusing message at the end that "In the tax year 6 April 2019 to 5 April 2020 you have £X of unused annual allowance and no tax to pay".  What that actually means is that you have £x available for carry forward to future years.  Your actual unused allowance is £x plus any unused allowance from 2016/17 if you want to make more contributions this year. You can see that in the table by looking at the unused allowance at the end of 2018/19.
All in all a pretty bad piece of design.

[frugledoc]

You need to go back 7 years to calculate your full carry forward as the last of the 3 years includes any carry from the 3 years before it.

Also 2015 had a double allowance due.

HMRC has a carry forward calculator and don’t forget the minefield of tapering if it applies.

Do you have a source for that as it is contrary to anything I've ever seen on the subject - eg from the pensions advisory service:
"If a particular tax year’s unused annual allowance is not fully used, it can only be carried forward for up to three years, after which it is lost. "
2015/16 had a kind of double allowance for current inputs due to the alignment of PIPs eith tax year's , but no extra carry forward.
https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/carry-forward-in-the-2015-16-transitional-year/

7 years is what the HMRC annual allowance calculator uses.  The last of the 7 years only count to the last if the 3 most recent years

https://www.tax.service.gov.uk/pension-annual-allowance-calculator

That calculator is in serious need of some work!  It cheerfully encourages you to put in loads of useless information then finishes by giving you an answer which is going to confuse many users.
On the plus side, it does actually correctly apply the rules which are that only unused allowance from the previous 3 tax years is available for carry forward.  Any years before that are completely irrelevant.  (I can only think that they leave them in the tool to let people work out if they paid too much into pensions in previous tax years).  They then give the confusing message at the end that "In the tax year 6 April 2019 to 5 April 2020 you have £X of unused annual allowance and no tax to pay".  What that actually means is that you have £x available for carry forward to future years.  Your actual unused allowance is £x plus any unused allowance from 2016/17 if you want to make more contributions this year. You can see that in the table by looking at the unused allowance at the end of 2018/19.
All in all  cua pretty bad piece of design.

I don't think the 3 years before are irrelevant. They carry foward to the last of the current 3 years so can still boost your annual allowance.  Does anybody use an accountant they can ask?

[PhilB]

You need to go back 7 years to calculate your full carry forward as the last of the 3 years includes any carry from the 3 years before it.

Also 2015 had a double allowance due.

HMRC has a carry forward calculator and don’t forget the minefield of tapering if it applies.

Do you have a source for that as it is contrary to anything I've ever seen on the subject - eg from the pensions advisory service:
"If a particular tax year’s unused annual allowance is not fully used, it can only be carried forward for up to three years, after which it is lost. "
2015/16 had a kind of double allowance for current inputs due to the alignment of PIPs eith tax year's , but no extra carry forward.
https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/carry-forward-in-the-2015-16-transitional-year/

7 years is what the HMRC annual allowance calculator uses.  The last of the 7 years only count to the last if the 3 most recent years

https://www.tax.service.gov.uk/pension-annual-allowance-calculator

That calculator is in serious need of some work!  It cheerfully encourages you to put in loads of useless information then finishes by giving you an answer which is going to confuse many users.
On the plus side, it does actually correctly apply the rules which are that only unused allowance from the previous 3 tax years is available for carry forward.  Any years before that are completely irrelevant.  (I can only think that they leave them in the tool to let people work out if they paid too much into pensions in previous tax years).  They then give the confusing message at the end that "In the tax year 6 April 2019 to 5 April 2020 you have £X of unused annual allowance and no tax to pay".  What that actually means is that you have £x available for carry forward to future years.  Your actual unused allowance is £x plus any unused allowance from 2016/17 if you want to make more contributions this year. You can see that in the table by looking at the unused allowance at the end of 2018/19.
All in all  cua pretty bad piece of design.

I don't think the 3 years before are irrelevant. They carry foward to the last of the current 3 years so can still boost your annual allowance.  Does anybody use an accountant they can ask?

I am a lapsed chartered accountant as it happens.  Unfortunately what I can't do is work out how to paste an image from the HMRC calculator into this thread so I apologise for the dodgy formatting.  In the below I plugged in contributions of £1k pa in all the early periods and then £34k, £35k and £36k for the last 3 tax years.  As you will see all years before those three are completely ignored in the calculation of the available allowance of £55k for 2019/2020 - it's just the current £40k plus the £4k, £5k and £6k from the previous three.

Year   Available annual allowance   Available money purchase annual allowance   Pension savings   Amount on which tax is due   Unused annual allowance
6 April 2019 to 5 April 2020    £55,000   £0   £40,000   £0   £9,000
6 April 2018 to 5 April 2019    £90,000   £0   £36,000   £0   £15,000
6 April 2017 to 5 April 2018    £124,000   £0   £35,000   £0   £50,000
6 April 2016 to 5 April 2017    £167,000   £0   £34,000   £0   £84,000
9 July 2015 to 5 April 2016    £177,000   £0   £1,000   £0   £127,000

[SpreadsheetMan]

Both my ifa and accountant advised me when I used the carry forward that only the last 3 tax years counted. I also checked the HMRC web site myself at the time, that calculator didn’t exist when I last looked.

[frugledoc]

I agree only the last 3 years count but my point is that the last of these should include carry forward from the 3 years before it.

I have heard this view from many people with expert knowledge so I must be clear as mud!

[PhilB]

I agree only the last 3 years count but my point is that the last of these should include carry forward from the 3 years before it.

I have heard this view from many people with expert knowledge so I must be clear as mud!

That is categorically not true.  Anything carried forward gets lost after 3 years if not used.  The only carry forward you can used in respect of the oldest of the three years is the difference between the actual annual allowance for that year and your pension contributions for that year (if lower).  Allowance is used up in the order current year first, then year-3, year-2, year-1.  Any unused carry forward from year -3 is lost.

[frugledoc]

I agree only the last 3 years count but my point is that the last of these should include carry forward from the 3 years before it.

I have heard this view from many people with expert knowledge so I must be clear as mud!

That is categorically not true.  Anything carried forward gets lost after 3 years if not used.  The only carry forward you can used in respect of the oldest of the three years is the difference between the actual annual allowance for that year and your pension contributions for that year (if lower).  Allowance is used up in the order current year first, then year-3, year-2, year-1.  Any unused carry forward from year -3 is lost.

I don't think this is correct.  Have had differing opinions but some people who are very knowledgable.

[PhilB]

I agree only the last 3 years count but my point is that the last of these should include carry forward from the 3 years before it.

I have heard this view from many people with expert knowledge so I must be clear as mud!

That is categorically not true.  Anything carried forward gets lost after 3 years if not used.  The only carry forward you can used in respect of the oldest of the three years is the difference between the actual annual allowance for that year and your pension contributions for that year (if lower).  Allowance is used up in the order current year first, then year-3, year-2, year-1.  Any unused carry forward from year -3 is lost.

I don't think this is correct.  Have had differing opinions but some people who are very knowledgable.

I'm afraid your knowledgeable people might not be as knowledgeable as you think :)
 The rules are most definitely as I have stated them and if you play with the HMRC calculator you will quickly find that that is precisely the way that it calculates it.  If you want further confirmation I would suggest posting the question on the MSE pension forum where you will get the same answer from a bunch of IFAs and other experts.

[frugledoc]

I agree only the last 3 years count but my point is that the last of these should include carry forward from the 3 years before it.

I have heard this view from many people with expert knowledge so I must be clear as mud!

That is categorically not true.  Anything carried forward gets lost after 3 years if not used.  The only carry forward you can used in respect of the oldest of the three years is the difference between the actual annual allowance for that year and your pension contributions for that year (if lower).  Allowance is used up in the order current year first, then year-3, year-2, year-1.  Any unused carry forward from year -3 is lost.

I don't think this is correct.  Have had differing opinions but some people who are very knowledgable.

I'm afraid your knowledgeable people might not be as knowledgeable as you think :)
 The rules are most definitely as I have stated them and if you play with the HMRC calculator you will quickly find that that is precisely the way that it calculates it.  If you want further confirmation I would suggest posting the question on the MSE pension forum where you will get the same answer from a bunch of IFAs and other experts.

It depends on whether you have dipped into any of your carry forward in the prior carry forward years.... if you haven't used any of the carry forward in the last 3 years it wont make a different how many years you make > 3

[PhilB]

It makes no difference whether you have dipped in or not.  The annual allowance for any particular year us only available to be used in a total of four years - the year itself and the three following.  At the end of that period it lapses and cannot be used.  The current tax year is the last year in which you can use any unsused allowance for 16/17.  The allowance for the earlier years is gone whether you used it or not and as you have to use current year before carry forward it makes no difference what you had carried forward at the start of 16/17.  Either you contributed less than the 16/17 allowance and could therefore carry forward what was left of that year, or you contributed more using carry forward and therefore have nothing to carry forward in respect of 16/17.

The only circumstance I can think of where the earlier years are relevant is if you contributed less than allowance in 16/17, more than allowance in  say17/18  and didn't do your calculations of carry forward at the time.  You would then be looking back at the 17/18 tax year to see where the carry forward you used in that year came from ie did you have enough in 14/15 and 15/16, or did you use up some of the 16/17 allowance on 17/18 contributions.  In other words how much you used from 15/16 and earlier has no direct bearing on what you can contribute this year as those allowances are gone, but it may have had an impact in 17/18 or 18/19 in working out whether or not you have already used up your 16/17 carry forward in those years.  Could that be what your knowledgeable friends were getting at?

[frugledoc]

It makes no difference whether you have dipped in or not.  The annual allowance for any particular year us only available to be used in a total of four years - the year itself and the three following.  At the end of that period it lapses and cannot be used.  The current tax year is the last year in which you can use any unsused allowance for 16/17.  The allowance for the earlier years is gone whether you used it or not and as you have to use current year before carry forward it makes no difference what you had carried forward at the start of 16/17.  Either you contributed less than the 16/17 allowance and could therefore carry forward what was left of that year, or you contributed more using carry forward and therefore have nothing to carry forward in respect of 16/17.

The only circumstance I can think of where the earlier years are relevant is if you contributed less than allowance in 16/17, more than allowance in  say17/18  and didn't do your calculations of carry forward at the time.  You would then be looking back at the 17/18 tax year to see where the carry forward you used in that year came from ie did you have enough in 14/15 and 15/16, or did you use up some of the 16/17 allowance on 17/18 contributions.  In other words how much you used from 15/16 and earlier has no direct bearing on what you can contribute this year as those allowances are gone, but it may have had an impact in 17/18 or 18/19 in working out whether or not you have already used up your 16/17 carry forward in those years.  Could that be what your knowledgeable friends were getting at?

God knows.  The last two years I’ve had to deal with the tapered allowance on a defined benefit scheme and didn’t have a bill to pay based on HMRCs calculator.  I now have exhausted all my carryforward so don’t need to worry about that any more.

Most important thing for higher earners on a defined benefit scheme is to stay below the threshold income. 

The taper tax is vile in my opinion.   First they try and pretend there is no 60% tax 100 - 125k and now this.  Why can’t they just be honest about it and increase income tax rates?

[vand]

You need to go back 7 years to calculate your full carry forward as the last of the 3 years includes any carry from the 3 years before it.

Also 2015 had a double allowance due.

HMRC has a carry forward calculator and don’t forget the minefield of tapering if it applies.

Do you have a source for that as it is contrary to anything I've ever seen on the subject - eg from the pensions advisory service:
"If a particular tax year’s unused annual allowance is not fully used, it can only be carried forward for up to three years, after which it is lost. "
2015/16 had a kind of double allowance for current inputs due to the alignment of PIPs eith tax year's , but no extra carry forward.
https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/carry-forward-in-the-2015-16-transitional-year/

7 years is what the HMRC annual allowance calculator uses.  The last of the 7 years only count to the last if the 3 most recent years

https://www.tax.service.gov.uk/pension-annual-allowance-calculator

That calculator is in serious need of some work!  It cheerfully encourages you to put in loads of useless information then finishes by giving you an answer which is going to confuse many users.
On the plus side, it does actually correctly apply the rules which are that only unused allowance from the previous 3 tax years is available for carry forward.  Any years before that are completely irrelevant.  (I can only think that they leave them in the tool to let people work out if they paid too much into pensions in previous tax years).  They then give the confusing message at the end that "In the tax year 6 April 2019 to 5 April 2020 you have £X of unused annual allowance and no tax to pay".  What that actually means is that you have £x available for carry forward to future years.  Your actual unused allowance is £x plus any unused allowance from 2016/17 if you want to make more contributions this year. You can see that in the table by looking at the unused allowance at the end of 2018/19.
All in all  cua pretty bad piece of design.

I don't think the 3 years before are irrelevant. They carry foward to the last of the current 3 years so can still boost your annual allowance.  Does anybody use an accountant they can ask?

I am a lapsed chartered accountant as it happens.  Unfortunately what I can't do is work out how to paste an image from the HMRC calculator into this thread so I apologise for the dodgy formatting.  In the below I plugged in contributions of £1k pa in all the early periods and then £34k, £35k and £36k for the last 3 tax years.  As you will see all years before those three are completely ignored in the calculation of the available allowance of £55k for 2019/2020 - it's just the current £40k plus the £4k, £5k and £6k from the previous three.

Year   Available annual allowance   Available money purchase annual allowance   Pension savings   Amount on which tax is due   Unused annual allowance
6 April 2019 to 5 April 2020    £55,000   £0   £40,000   £0   £9,000
6 April 2018 to 5 April 2019    £90,000   £0   £36,000   £0   £15,000
6 April 2017 to 5 April 2018    £124,000   £0   £35,000   £0   £50,000
6 April 2016 to 5 April 2017    £167,000   £0   £34,000   £0   £84,000
9 July 2015 to 5 April 2016    £177,000   £0   £1,000   £0   £127,000

Thanks PhilB.

Makes sense, but very unclear the difference between the "Available Annual Allowance" and the "Unused Annual Allowance"

The figure the calculator spits out at the top of the page reflect the "Unused annual allowance" number.. but you are saying that is not correct?

edit: I see, yes, the "Unused Annual Allowance" effectively means the carry-forward from the previous 3 years as you explained :)