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Saving statement examples

Below are two examples where members have breached their annual allowance limit in 2016/17. In the first example there will not be a tax charge payable as the member is able to use previous year carry forward protection to offset the breach. In the second example, the member will have a tax charge as they have insufficient carry forwards to offset it.

Example 1 - Annual allowance breach but no tax charge

Mr A has the following pension savings.

Pension Input Period (PIP) Pension Input Amount (PIA) ‘Standard’ Annual Allowance applying for PIP
2016/17:
(6 April 2016 to 5 April 2017) £67,000 £40,000
2015/16:
Second part-year PIP (9 July 2015 to 5 April 2016) £33,000 £0
First part-year PIP (1 April 2015 to 8 July 2015) £12,000 £80,000
2014/15:
(1 April 2014 to 31 March 2015) £35,000 £40,000
2013/14:
(1 April 2013 to 31 March 2014) £30,000 £50,000

  • He has not paid into any other pension scheme in these tax years.
  • He has not flexibly accessed any pension benefits since 6 April 2015
  • His threshold income is £45000

Step 1:

This step is not applicable as Mr A has not paid into any other pension scheme in the periods shown. If he had, he would have to add all the pension savings (PIAs) he has for each tax year together and base his calculations on his total pension savings in each year.

Step 2:

Mr A considers if a lower annual allowance applies to him. He determines that it doesn’t because:

  • He has not flexibly accessed any pension benefits after 6 April 2015, so the Money Purchase Annual Allowance rules don’t apply to him
  • His threshold income is lower than £115,000 so the Taper Annual Allowance rules don’t apply to him.

As the standard annual allowance threshold of £40000 for 2016/17 applies to him, he has exceeded this by £27,000.

Step 3:

Mr A has not breached the annual allowance before so he has never ‘used’ any of the carry forward from any of the previous years (if he had, then he could not ‘use’ the same amount again).

So starting with the oldest year he has the following:

  • In 2013/14: £50,000 allowance minus £30,000 PIA = £20000 carry forward
  • In 2014/15: £40,000 allowance minus £35,000 PIA = £5000 carry forward
  • In 2015/16: Carry forward from second part year PIP (see below) = £7000 carry forward.

In 2015/16, the tax year was split into two mini periods for annual allowance purposes, so Mr B needs to review this year differently. The mini steps are:

Did Mr B have any carry forward from the first part year PIP into the second part year PIP?

Yes – the £12,000 PIA was under the threshold of £80,000 by £68,000.

However, although £68,000 is unused from the first part-year PIP, Mr B can only carry forward a maximum of £40,000 into the second part year PIP (ignoring any other carry forward at this stage).

Does Mr A have any carry forward at the end of the second part-year PIP?

Yes – the £33,000 PIA was under the £40,000 he had carried forward from the first part year PIP, so he can carry forward a total of £7000 of unused allowance for 2015/16.

So in total, Mr A has £32,000 unused annual allowance that he can use to offset against a tax charge.

Step 4:

Mr A’s ‘excess’ pension savings in 2016/17 = £27,000

This is less than the £32,000 annual allowance carry forward that can be used to offset against a tax charge so his pension savings are not subject to the further tax charge.

If his ‘excess’ had been more than the unused annual allowance, he would have had to declare this excess on his tax return and arrange to pay the annual allowance tax charge.

Going forward into 2017/18, he will have ‘used’ the following:

2013/14 = £20,000 unused carry forward minus £20,000 (from excess) = £0.00 remaining (this year would however be ignored in 2017/18 as only the last 3 years can be considered)

2014/15 = £5,000 unused allowance minus £5,000 (from excess) = £0.00 remaining

2015/16 = £7,000 unused allowance minus £2,000 (from excess) = £5,000 remaining

2016/17 = £0.00 unused allowance (due to breach)

Example 2 – Annual allowance breach without enough carry forward allowance

Mrs B has the following pension savings.

Pension Input Period (PIP) Pension Input Amount (PIA) ‘Standard’ Annual Allowance applying for PIP
2016/17:
(6 April 2016 to 5 April 2017) £182,000 £40,000
2015/16:
Second part-year PIP (9 July 2015 to 5 April 2016) £31,000 £0
First part-year PIP (1 April 2015 to 8 July 2015) £45,000 £80,000
2014/15:
(1 April 2014 to 31 March 2015) £15,000 £40,000
2013/14:
(1 April 2013 to 31 March 2014) £20,000 £50,000

  • She has not paid into any other pension scheme in these tax years.
  • She has not flexibly accessed any pension benefits since 6 April 2015
  • Her threshold income is £60,000

Step 1:

This step is not applicable as Mrs B has not paid into any other pension schemes in the periods shown. If she had, she would have to add all the pension savings (PIAs) she has for each tax together and base the calculations on her total pension savings in each year.

Step 2:

Mrs B considers if a lower annual allowance applies to her. She determines that it doesn’t because:

  • She has not flexibly accessed any pension benefits after 6 April 2015, so the Money Purchase Annual Allowance rules don’t apply to her.
  • Her threshold income is lower than £115,000 so the Taper Annual Allowance rules don’t apply to her.

As the standard annual allowance threshold of £40,000 for 2016/17 applies to her, she has exceeded this by £142,000.

Step 3:

Mrs B has not breached the annual allowance before so she has never ‘used’ any of the carry forward from any of the previous years (if she had, then she could not ‘use’ the same amount again).

So starting with the oldest year she has the following:

  • In 2013/14: £50,000 allowance minus £20,000 PIA = £30,000 carry forward
  • In 2014/15: £40,000 allowance minus £15,000 PIA = £25,000 carry forward
  • In 2015/16 (from second part year PIP only – see below) = £4,000 carry forward.

In 2015/16, the tax year was split into two mini periods for annual allowance purposes, so Mrs B needs to review this year differently. The mini steps are:

Did Mrs B have any carry forward from the first part year PIP into the second part year PIP?

Yes – the £45,000 PIA was under the threshold of £80,000 by £35,000.

As this was less than the maximum carry forward allowed of £40,000, the figure of £35,000 carries forward into the second part year PIP (ignoring any other carry forward at this stage).

Does Mrs B have any carry forward at the end of the second part-year PIP?

Yes – the £31,000 PIA was under the £35,000 she carried forward from the first part year PIP, so she can carry forward a total of £4,000 of unused allowance for 2015/16.

So in total, Mrs B has £59,000 unused annual allowance that she can use to offset against a tax charge.

Step 4:

Mrs B’s ‘excess’ pension savings in 2016/17 = £142,000

This is more than the £59,000 unused annual allowance that can be used to offset against a tax charge so her pension savings that are subject to the annual allowance tax charge are:

£142,000 minus £59,000 = £83,000.

The amount of the tax charge is dependent on her personal tax situation and she must declare this by completing a Self-Assessment Tax Return (further information on this is available at: www.gov.uk

She must pay the tax charge due by a direct payment to HMRC, or, she can ask the pension scheme to pay the tax charge (in exchange for a permanent reduction to her future pension) if the following apply:

  • The tax charge exceeds £2,000;
  • Benefits have not yet claimed, and;
  • An election is made before 31 July 2017

This is known as the mandatory scheme pays option.

Going forward to 2017/18, if she breaches again, she will not have any unused allowance left from the previous 3 years, so any excess will be subject to an annual allowance tax charge.

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