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How you could contribute £170k to your pension tax free this year

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Written by: Paloma Kubiak
06/04/2016
The annual pension allowance is £40,000 for the new tax year but you could be eligible to contribute £170,000 into your pot tax free. We explain how.

For most people, the annual allowance – the amount of money you can save every year into your pension tax-free – is £40,000, but special rules mean you may be able to contribute more than four times that amount.

‘Carry forward’ rules enable you to use up any unused annual allowance going back three years. That means you could be eligible to contribute as much as £170,000 into your pension tax-free until 5 April 2017, including both personal and employer contributions.

To benefit from these rules, you must have been a member of a pension scheme during the previous three tax years.

How am I able to maximise contributions to £170,000?

The current annual allowance is £40,000 for the 2016/17 tax year but with the ‘carry forward’ rule which allows you to contribute money using the previous three years’ worth of annual allowances, you can actually put away up to £170,000.

This is made up from previous years’ annual allowances:

  • 2013/14 – £50,000
  • 2014/15 – £40,000
  • 2015/16 – £40,000
  • 2016/17 – £40,000

Claire Trott, head of pensions technical at Talbot and Muir says: “For those looking to maximise their pension contributions in the new tax year, they should make sure they are not exceeding their annual allowance, including carry forward. If you do you will need to declare it on your self-assessment and it will remove any tax relief that you have received on these contributions, even if it is paid as employer contributions.”

Trott adds that pension providers will be able to tell you what contributions relate to which tax year and therefore if you can benefit from this because it may differ between schemes.

How will the new Annual Allowance taper affect this?

From today, the new Annual Allowance Taper takes effect. It reduces the annual pension allowance limit by £1 for every £2 for higher earners. That means the annual allowance gradually falls for people earning above £150k until it bottoms out at £10,000 for those with an adjusted income above £210,000.

But for the purpose of the carry forward rules, the Annual Allowance Taper won’t impact on previous years’ allowances.

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