Pensions allowance 2012. Keep Calm and ‘Carry’ on….
Last year you may well have come across news that the annual pension allowance had been slashed from £255,000, to a more paltry £50,000. Well it looks comparatively paltry, but is it….?
As IFAs we are uniquely focused entirely on our Contractor clients and pension investment represents one the very few non-contentious tax breaks still available to you so many were very disappointed when these new rules came out last year. Thankfully an old pensions phrase was reintroduced to our lexicon as ‘carry forward’ allowed the member to utilise unused allowance from the three previous tax years based on the new £50k cap. An example of this would be:
08/09 – £30k investment – Carry forward is £20k
09/10 – £20k investment – Carry forward is £30k
10/11 – £80k investment – Carry forward is minus £30k
Available carry forward of unused allowances is £20k, with the maximum contribution being £70k for the current year if we add your normal £50k allowance.
As the investor has invested £30,000 over the allowable in the 10/11 input period this will have subsequently reduced the available additional investment possible.
However, the rules were revisited by the HMRC late last year and have now been amended which could work out very lucrative to pension savers, especially contractors who are looking to reduce their tax burden and regardless of whether they are caught by IR35 or not. The new rules will nownot incorporate any overpayment in past years, so based on the above example the investor would actually have an additional £50,000 as the 10/11 tax year would simply qualify as a zero figure. If we then add your £50,000 allowance you have a maximum of £100,000 investment open to you.
Contractor Pensions
As you can see, with specialist advice the new allowance need not stop you achieving the tax breaks you seek whilst also boosting your income at retirement. The tax savings shop window is still very much open for business and with tax year end round the corner / company year end on the horizon, this could be the perfect time to take advantage of the new rules and put in place some effective financial planning from your Contractor Specialist IFA.
If you would like further information on this and our range of flexible Contractor Pensions then please contact Andrew Gains who is one of our qualified advisers at ContractorMoney on 0845 066 8888 or fill in a contact form on this site and we will be more than happy to help.