Tapered Annual Allowance & Carry Forward
Nath
Member
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
Potentially you need to go to current tax year minus 6 to work out carry forward availability.
It can get complicated.
Yep, CashCalc is good for this because it alerts you to the fact there might not be full availability in previous years
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.
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.
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.
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
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!
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
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