Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Pensions Tax Manual

From
HM Revenue & Customs
Updated
, see all updates

Annual allowance: transitional rules for tax year 2015-16: general

Overview
Tax year 2015-16 split into two ‘mini’ tax years
Transitional rules - general

Overview

On 8 July 2015 it was announced that all pension input periods will match the tax year (i.e. run from 6 April to 5 April) with effect from 6 April 2016.

Transitional rules apply for tax year 2015-16 to align existing and new pension input periods during 2015-16 so that all pension input periods are tax year based from the start of tax year 2016-17 onwards.

Tax year 2015-16 split into two ‘mini’ tax years

Section 228C Finance Act 2004

For annual allowance purposes only (which includes the money purchase annual allowance and alternative annual allowance), tax year 2015-16 is split into two ‘mini’ tax years:

  • the ‘pre-alignment tax year’ which begins on 6 April 2015 and ends on 8 July 2015, and
  • the ‘post-alignment tax year’ which begins on 9 July 2015 and ends on 5 April 2016.

Transitional rules - general

The transitional rules for tax year 2015-16 apply to the ‘mini’ tax years (the pre and post-alignment tax years) in the following ways

  • what amount of annual allowance applies for the pre and post-alignment tax years
  • what amount of money purchase annual allowance and alternative annual allowance applies for the pre and post-alignment tax years
  • setting the pension input periods for the pre and post-alignment tax years
  • calculation of pension input amounts for the pre and post-alignment tax years, and
  • carrying forward unused annual allowance to the pre and post-alignment tax years.

Also, the transitional rules apply to tax years 2016-17, 2017-18 and 2018-19 for the purpose of carrying forward unused annual allowance from the pre and post-alignment tax years and earlier tax years.

Essentially, a pension input amount is calculated for the pre-alignment tax year.  This is tested against an annual allowance for that ‘mini’ tax year.  There is a ‘chargeable amount’ in respect of the ‘mini’ tax year if the pension input amount exceeds the annual allowance for that year; the chargeable amount being the excess input amount over the annual allowance.

Similarly, a pension input amount is calculated for the post-alignment tax year.  Typically, this is tested against an amount of available unused annual allowance that can be carried forward to the post-alignment tax year from the pre-alignment tax year and the previous three tax years before that (there being no annual allowance for the post-alignment tax year for most individuals).  There is a ‘chargeable amount’ in respect of the post-alignment tax year if the pension input amount exceeds the amount of unused annual allowance carried forward; the chargeable amount being the excess input amount over the carried forward unused annual allowance.

A money purchase annual allowance and alternative annual allowance could apply instead for either, or each, of the pre and post-alignment tax years.

Certain individuals will have an annual allowance of £40,000 for the post-alignment tax year.

Separate annual allowance charges for the pre or post-alignment tax years (or both) cannot arise.  Instead, a single annual allowance charge for tax year 2015-16 as a whole arises if an individual has a chargeable amount for either (or each) of the pre and post-alignment tax years.  The tax charge is based on the sum of the chargeable amounts for the pre and post-alignment tax years.  Also, for the purpose of the ‘Scheme Pays’ conditions, the individual’s pension input amount for the pre and post-alignment tax years for the pension scheme must have exceeded £40,000 (PTM056410 has more details about ‘Scheme Pays’).

PTM058020 has details about the amount of annual allowance.

PTM058030 has details about the amount of money purchase and alternative annual allowance.

PTM058040 has details about setting the pension input periods.

PTM058050 to PTM058090 has details about the calculation of pension input amounts.

PTM055100 onwards has details about the carry forward provisions (but see PTM058030 when the money purchase annual allowance rules apply for the pre-alignment tax year).