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HMRC internal manual

Pensions Tax Manual

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HM Revenue & Customs
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Annual allowance: transitional rules for tax year 2015-16: amount of money purchase annual allowance

Pre-alignment tax year – amount of money purchase annual allowance
Post-alignment tax year – amount of money purchase annual allowance
Comparing default and alternative chargeable amounts

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.  PTM058020 has details about the annual allowance.

Pre-alignment tax year – amount of money purchase annual allowance

The money purchase annual allowance for the pre-alignment tax year is £20,000.

The alternative annual allowance for the pre-alignment tax year is £60,000.

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 £60,000 alternative annual allowance.

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Post-alignment tax year – amount of money purchase annual allowance

The amount of money purchase 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 generally and PTM056520 lists the trigger events.

Individual was a member of a registered pension scheme at some time during the pre-alignment tax year 

Depending on the individual’s circumstances, the money purchase annual allowance for the post-alignment tax year is one of the following:

  • £10,000,
  • £20,000 less £X (an amount less than £10,000 but not nil), or
  • nil.

The money purchase annual allowance for the post-alignment tax year is £10,000 for an individual where:

  • the money purchase annual allowance did not apply at all for the pre-alignment tax year, or
  • it did apply but did not have practical application and the individual’s ‘money purchase input amounts’ for the pre-alignment tax year did not exceed £10,000.

The money purchase annual allowance for the post-alignment tax year is £20,000 less £X for an individual where:

  • the money purchase annual allowance applied for the pre-alignment tax year, but
  • it did not have practical application, because
  • the individual’s ‘money purchase input amounts’ for the pre-alignment tax year were £X, i.e. the money purchase input amounts were more than £10,000 but less than £20,000.

The money purchase annual allowance for the post-alignment tax year is nil for an individual where:

  • the money purchase annual allowance applied for the pre-alignment tax year
  • the individual’s ‘money purchase input amounts’ for the pre-alignment tax year are £20,000 or more,  and either
    • the money purchase annual allowance did not have practical application because the individual’s chargeable amount for the pre-alignment tax year was the default chargeable amount (not the alternative chargeable amount), or
    • the money purchase annual allowance did have practical application because the individual’s chargeable amount for the pre-alignment tax year was the alternative chargeable amount.

The alternative annual allowance for the post-alignment tax year is nil (regardless of whether the individual’s money purchase annual allowance is £10,000, £20,000 less £X or nil).

The following available unused annual allowance can be carried forward to the post-alignment tax year and added to the ‘nil alternative annual allowance’:

  • ‘unused allowance’ from the pre-alignment tax year but subject to a maximum amount, plus
  • available unused annual allowance from 2012-13, 2013-14, 2014-15.

The ‘unused allowance’ for this purpose is either:

  • unused annual allowance subject to a maximum of £40,000, if the money purchase annual allowance did not have practical application for the pre-alignment tax year, or
  • unused alternative annual allowance subject to a maximum of £30,000, if the money purchase annual allowance had practical application for the pre-alignment tax year.

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

Where an individual was not a member of a registered pension scheme at any time during the pre-alignment tax year:

  • the money purchase annual allowance for the post-alignment tax year is £10,000, and
  • the alternative annual allowance for the post-alignment tax year is £30,000.

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Comparing default and alternative chargeable amounts

Individuals who are subject to the money purchase annual allowance for a tax year must undertake two tests in relation to their pension input amounts for that tax year.  This is to establish whether the application of the money purchase annual allowance produces a greater amount subject to the annual allowance charge compared to the annual allowance being applied.  This comparison test applies equally to the pre and post-alignment tax years.

If the individual flexibly accesses a money purchase arrangement in certain circumstances during the pre-alignment tax year the comparison test will apply for both the pre and post-alignment tax years (as well as subsequent tax years).

If the flexible access occurs in the post-alignment tax year the comparison test will apply for that ‘mini’ tax year only (as well as for subsequent tax years).

PTM056510 has details about the money purchase annual allowance test generally.

For the pre-alignment tax year, the money purchase annual allowance will have application if the individual’s money purchase pension input amounts (i.e. money purchase pension input amounts which occur in the same ‘mini’ tax year but after first flexibly accessing a money purchase arrangement) exceed £20,000.  Then the alternative annual allowance for the pre-alignment tax year will have application for other pension input amounts for the same ‘mini’ tax year.

If the individual’s money purchase pension input amounts exceed £20,000, the individual will also have to test all pension input amounts against the annual allowance of £80,000 for the pre-alignment tax year (see PTM058020).  This to determine whether the individual’s chargeable amount by reference to the money purchase annual allowance (the alternative chargeable amount for the ‘mini’ tax year) is greater than the chargeable amount by reference to the annual allowance (the default chargeable amount for the ‘mini’ tax year).  The alternative chargeable amount applies for the ‘mini’ tax year if it is greater than the default chargeable amount for the same year.  Otherwise the default chargeable amount applies.

If the individual’s money purchase pension input amounts for the pre-alignment tax year do not exceed £20,000 all of the individual’s pension input amounts for that ‘mini’ tax year are tested against the £80,000 annual allowance (see PTM058020).

The same applies for the post-alignment tax year except that:

  • the money purchase annual allowance limit for the post-alignment tax year (£10,000, £20,000 less £X or nil)
  • how much unused allowance can be carried forward to the post-alignment tax year for alternative annual allowance purposes, and
  • how much unused annual allowance can be carried forward to the post-alignment tax year for annual allowance purposes

all depend on how the annual allowance and money purchase annual allowance applied to the individual in the pre-alignment tax year.

Example

An individual flexibly accesses a money purchase arrangement during the pre-alignment tax year.  This triggers the money purchase annual allowance for the same ‘mini’ tax year.

The individual’s money purchase pension input amounts which occur in the pre-alignment tax year but after the flexible access is £25,000.  The 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 (£25,000 + £23,000 = £48,000). 

This means the money purchase annual allowance for the post-alignment tax year is nil and the unused allowance that can be carried forward from the pre-alignment tax year is limited to the unused alternative annual allowance from that ‘mini’ tax year (plus any available unused annual allowance from 2012-13, 2013-14, 2014-15). Carrying forward unused annual allowance by reference to the £80,000 annual allowance for the pre-alignment tax year does not apply because the money purchase annual allowance had practical application for the pre-alignment tax year.

£37,000 worth of the £60,000 alternative annual allowance (£60,000 less £23,000) for the pre-alignment tax year 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 and added to the £30,000 figure.