Tapered Annual Allowance & Carry Forward

Afternoon all. Its been a while since I have been looking at calcs around this but we have a client that I now need to look at the figures. I am aware of all the usual cashcalc/standard life/pru calculators around this but just a simple question to start really. Should be straight forward but I am having a Friday mindblock.

For 2019/20 tax year we won't know his exact income as this is reliant on large bonuses. However, we have previous years P60 and total pay has been between £211K tand £102K.

I have the PIAs for each of the tax years needed (all employer contributions), however, my question as follows:

  • In relation to the previous 3 years earnings, do I need to work out if he breached any limits for taper in those tax years to work out what his reduced annual allowance would be for those years, so I then know what to carry forward from each year or is it purely this tax year for taper?

I would of thought it was on all 3 previous years (taper came in April 2016), but none of the calculators ask for previous years earnings, just this year.

TIA

Comments

  • benjaminfabibenjaminfabi Moderator
    edited July 2019
    Yes.

    Potentially you need to go to current tax year minus 6 to work out carry forward availability.

    It can get complicated.
    Benjamin Fabi FPFS
    Chartered Financial Planner
  • edited July 2019

    Yep, CashCalc is good for this because it alerts you to the fact there might not be full availability in previous years

  • NathNath Member

    Thanks both. I have just realised in cashcalc that although it only asks for current years earnings, you can just select a previous tax year and put the amount in and just make note of the reduced allowance if any.

    I would of thought you would have to taper each year since its been in force (only think he may be over thresholds on 1 anyway and not put over £10K in each of previous years so its just working out what he has left). I would always err on the side of caution rather than take it to the wire as well.

  • Yes you do have to complete a taper calculation for each year it's been in force.

    The fact that someone could have made contributions but didn't won't stop them being tapered if adjusted income was above £150,000.

    The maximum carry forward for a given year is the balance of the annual allowance, tapered or not, minus the contributions made.
    Benjamin Fabi FPFS
    Chartered Financial Planner
  • NathNath Member

    Of course, thanks Ben. Yeah I think last years may be reduced to £10K based on figures I have and his PIA was £19.7K, however, looks as though he had full available in years prior to this so he should be well within limits. I think I may leave the actual full detailed calcs until Monday morning....defo a Monday morning job rather than a Friday p.m when a pub garden is calling shortly.

    Have a good one all.

  • NathNath Member

    Sorry to bump this back to the top but one last question on this. For teh 17/18 tax year I have calculated that the reduced annual allowance is £26,925.11 as his ANI is £176,149.78 which obvs includes the employer cont £6,246.80.

    Just wanted to check my final part of calc. I assume that the taper has reduced the AA to the above £26.925.11 but then I also have to take off the £6,24.80 ER contribution too. I am sure I do, but just wanted to double check given that it was already included in the taper calcs.

    Thanks

    N

  • NathNath Member

    Sorry and again another question. Having worked out for each year what AA is remaining the client ANI is well over in 18/19 tax year and his AA was reduced fully to £10,000. However, PIA for 18/19 is £19,741.12 ER contributions. On this basis he is £9,741.12 over. Do I take this off the 2015/16 tax year allowance as its 3 years back from 18/19 tax year. Aware its a split year but he did have full allowance as earnings not near thresholds and no PIA.

  • Does ANI mean income?

    If he overpaid this year, he can used unused allowances starting from the 3rd year back.

    I know you know this, so i've probably misunderstood the question!

  • NathNath Member

    Hi Aron, Yes ANI Adjusted Net Income above the £150K is what I meant sorry. He overpaid 18/19 tax year so assuming he can used unused from 15/16 is what I was asking.

  • Hi Nath,

    Scottish Widows' Carry-Forward Calculator is the one that our firm uses, found here: https://adviser.scottishwidows.co.uk/tools/pensions-and-investments.html#

    Most importantly it factors in Threshold and Adjusted Income figures for all relevant tax years!

    Previous calculations that we've performed will use the 3rd year back for each tax-year Annual Allowance 'breach' - so it is as Benjamin says above, you will potentially need the previous 6 tax-years' Income and Pension Inputs to fully understand the position.

    Also, the Tapered Annual Allowance didn't apply in 15/16; In fact, we did the calculation for a particularly high-earner last tax-year, and we strongly recommended that he 'use or lose' his final year of un-tapered carry-forwardable Allowance from 15/16.

    To answer your question directly: yes, he would have used any available allowance in the 15/16 tax-year first to account for the £9,741.12 over-payment, and he could have potentially made a £50,000 payment in the 18/19 had he made no pension payments in 15/16 AND he did not overpay in the 16/17 or 17/18 tax-years (as these may have started to use up their previous 3 years).

    Hope that helps!

    Alex

  • NathNath Member

    Thanks Alex, just finished all the calcs (I like to do manual and then use calculator so I fully understand and then can check). Pleased to say the cashcalc TAA/Carry Forward calculator matched my workings exactly which was re-assuring and did exactly as stated i.e £9,741.12 used up 15/16 (he had full allowance available anyway).

    Still has £57,847 available (inc remaining TAA this year after current contributions) in total which is good.

    Note this is a new client so we can discuss when his bonus his paid how much he can maximise.

    Thanks for the link, I think I now have Cashcalc/Pru (Pru was my go to tool as very detailed although Pru not updated for this tax year!)/Scot Wids and Standard Life :)

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