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HMRC internal manual

Pensions Tax Manual

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Annual allowance: transitional rules for tax year 2015-16: amount of annual allowance

Pre-alignment tax year – amount of annual allowance
Post-alignment tax year – amount of annual allowance

Section 228C Finance Act 2004

Transitional annual allowance rules apply for tax year 2015-16.

For annual allowance purposes only, the 2015-16 tax year is split into two ‘mini’ tax years - the ‘pre-alignment tax year’ and the ‘post-alignment tax year’ (see PTM058010 for more details).

Each ‘mini’ tax year has its own allowances for annual allowance and money purchase annual allowance purposes.  PTM058030 has details about the money purchase annual allowance.

Pre-alignment tax year – amount of annual allowance

The annual allowance for the pre-alignment tax year is £80,000.

Available unused annual allowance from 2012-13, 2013-14, 2014-15 can be carried forward to the pre-alignment tax year and added to the £80,000 annual allowance.

If it applies, the individual will also have to test pension input amounts against the money purchase annual allowance and alternative annual allowance for the pre-alignment tax year (see PTM058030) to determine whether the individual has an alternative, or default, chargeable amount for that ‘mini’ tax year.

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Post-alignment tax year – amount of annual allowance

The amount of annual allowance for the post-alignment tax year depends on:

  • whether or not the individual is a member of a registered pension scheme at some time during the pre-alignment tax year, and
  • if the individual is such a member, whether or not the money purchase annual allowance had practical application for the pre-alignment tax year.

The money purchase annual allowance having practical application for this purpose means:

  • the money purchase annual allowance applies to the individual for the pre-alignment tax year because a trigger event occurs during that ‘mini’ tax year, and
  • the individual’s chargeable amount for the pre-alignment tax year is the alternative chargeable amount.

PTM056510 has details about the money purchase annual allowance test in general and PTM056520 lists the trigger events.

Individual was a member of a registered pension scheme at some time during the pre-alignment tax year – money purchase annual allowance did not have practical application for that same year  

The annual allowance for the post-alignment tax year is nil.

However, the following available unused annual allowance can be carried forward to the post-alignment tax year:

  • unused annual allowance from the pre-alignment tax year but subject to a maximum of £40,000, plus
  • unused annual allowance from 2012-13, 2013-14, 2014-15.

Example

An individual’s total pension input amount for the pre-alignment tax year is £25,000.  This means £55,000 worth of the £80,000 annual allowance has not been used.

However, the maximum amount of available unused annual allowance that can be carried forward to the post-alignment tax year is £40,000 (not £55,000).  Any available unused annual allowance from 2012-13, 2013-14, 2014-15 can also be carried forward to the post-alignment tax year as well.

If the individual’s total pension input amount for the pre-alignment tax year was £45,000 then the amount of available unused annual allowance that can be carried forward from the pre-alignment tax year is £35,000 (plus any available unused annual allowance from 2012-13, 2013-14, 2014-15).

Individual was a member of a registered pension scheme at some point during the pre-alignment tax year – money purchase annual allowance had practical application for that same year 

The annual allowance for the post-alignment tax year is nil.

However, the following available unused annual allowance can be carried forward to the post-alignment tax year:

  • unused alternative annual allowance from the pre-alignment tax year but subject to a maximum of £30,000, plus
  • unused annual allowance from 2012-13, 2013-14, 2014-15.

Example

An individual’s money purchase inputs for the pre-alignment tax year are £25,000 and other inputs are £23,000.  The money purchase annual allowance has practical application for the pre-alignment tax year because the individual’s chargeable amount for that ‘mini’ tax year is the alternative chargeable amount of £5,000 (£25,000 less £20,000).  There is no default chargeable amount because the individual’s total pension input amount for the pre-alignment tax year is less than £80,000.  

This means £37,000 worth of the £60,000 alternative annual allowance has not been used but the maximum amount of available unused alternative annual allowance that can be carried forward to the post-alignment tax year is £30,000 (not £37,000).  Any available unused annual allowance from 2012-13, 2013-14, 2014-15 can also be carried forward to the post-alignment tax year.

Individual was not a member of a registered pension scheme at any time during the pre-alignment tax year

The annual allowance for the post-alignment tax year is £40,000.