New guidance on HMRC’s interpretation of the three year ‘carry forward’ pension rule provides an opportunity for investors to make significant additional contributions to their pension scheme, says AJ Bell, the online Sipp provider.
Under the previous interpretation, an investor who had paid in more than £50,000 in either 2009/2010 or 2010/2011 was deemed to have used up some of their annual allowance from earlier tax years, reducing the carry forward available to them. Under the new interpretation, that is no longer the case.
To take an extreme example, an investor who paid £150,000 into his pension in 2010/2011 would not, under the old interpretation, have been able to make use of carry forward in either the 2008/2009 or 2009/2010 tax years.
Now, however, they could potentially pay in up to £100,000 in carry forward contributions in this tax year. According to HMRC, investors can carry forward any annual allowance that they have not used in the three previous tax years to the current tax year.