Money Matters Sep 11

Maximum Pension Contribution

The last 15 years have been dedicated to growing our company and we neglected pension planning until recently when we started investing the odd lump sum.  As we are nearing our 60’s we want to start paying as much as we can in to our Pensions.  What is the maximum that we or our company are allowed to invest?

Answer:

The maximum Personal contribution is the greater of £3600 or 100% of your Salary (UK relevant earnings) subject to an overall maximum (Annual Allowance) of £50,000pa. If the contribution exceeds the Annual Allowance of £50,000 (except as per below) there will be an Income Tax Charge on the excess.  A Company can invest up to £50,000 per individual Employee/Director regardless of their Salary.  However, any contribution must satisfy the ‘wholly and exclusively rule’ to be eligible for Corporation Tax Relief.  There has been some confusion by various local Tax Inspectors over the interpretation of the “wholly and exclusively” and it is best to check with your Accountant prior to making any investment. If you can afford to invest more than £50,000 then it is now (since April 2011) possible to “Carry Forward” any unused Annual Allowances from previous Tax Years. You must use the Annual Allowance in the current Tax Year first and then any unused Annual Allowance from the previous 3 Tax Years can be carried forward starting with the earliest Tax Year first.  There are a number of points to be aware of when using Carry Forward; you must have had a Pension (even one you were not paying it to at the time qualifies) in the Carry Forward years in order to be eligible for Carry Forward.  If you did not, Carry Forward is not available to you.  When looking at contributions for the previous Tax Years they must be allocated to the Tax Year in which the Input Period for the Pension ends.  This can be different to the Tax Year in which the payment was actually made.  Any amounts invested over £50,000 are always applied to the most recent Carry Forward year first; you do not get to choose which years to use.  Finally this is a fairly complex area and it is important to get expert advice.

Any reader interested in discussing this topic further can telephone Peter Sharratt on 01344 875000 or email peter.sharratt@kirkrice.co.uk

Answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.