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HMRC internal manual

Pensions Tax Manual

International: UK tax charges on non UK schemes: the annual allowance charge and non-UK schemes: carrying forward unused annual allowance from earlier years

Glossary PTM000001
   

 

Paragraphs 9A and 9B Schedule 34 Finance Act 2004

A currently-relieved member of a currently-relieved non-UK pension scheme is subject to the annual allowance provisions including the carry-forward provisions. Carry-forward means that a member who has a total pension input amount of more than the annual allowance for a tax year from 2011-12 onwards they may still not be liable for an annual allowance charge for that year.

It may be possible for the member to carry forward any unused annual allowance from the previous three tax years to the current tax year. This amount of unused annual allowance can then be added to the current year’s annual allowance. The annual allowance charge will be due only on any excess over the total of the annual allowance for the tax year plus any unused annual allowance carried forward.

PTM055100 gives more information about carrying forward unused annual allowance.

Currently-relieved member is a member of the currently-relieved non-UK pension scheme for any of the previous three tax years
Currently-relieved member was not a member of the currently-relieved non-UK pension scheme for any of the previous three tax years?

Currently-relieved member is a member of the currently-relieved non-UK pension scheme for any of the previous three tax years

If a currently-relieved member has been a member of the currently-relieved non-UK pension scheme for any of the previous three tax years, the extent to which any unused annual allowance can be carried forward from those earlier years, depends on whether the annual allowance rules applied to the member in those earlier years - i.e. did the member qualify for UK tax relief in those years.

For a year in which the annual allowance rules apply, the member can carry forward unused annual allowance on the same basis as a member of a registered pension scheme. However, before determining the amount of unused annual allowance to carry forward, one must first determine the pension input amount for the given tax year.

The method for determining the input amount is modified for a currently-relieved member of a currently-relieved non-UK pension scheme by the application of the appropriate fraction (see PTM113320 in relation to cash balance arrangements and defined benefits arrangements and PTM113330 in relation to other money purchase arrangements).

On the other hand, if the individual had been a member of the scheme for any of the previous three tax years but the annual allowance rules did not apply to the member for any year (i.e. the member did not qualify for UK tax relief for that year) the member can still carry forward unused annual allowance. However, for the tax year in question, the appropriate fraction does not apply to calculation of the pension input amount.

The member may not be able to carry forward unused annual allowance from one or more of the previous three tax years if the individual was not a member of the current currently-relieved non-UK pension scheme during any part of that earlier tax year, for example because the individual was in a different pension scheme of the current employer or was in a pension scheme of another employer.

If the individual was in a different pension scheme in an earlier tax year it might still be possible to carry forward but only if that other pension scheme was either a registered pension scheme or was, itself, a currently-relieved non-UK pension scheme because the individual got UK tax relief for the year concerned in respect of that scheme.

Example

The XYZ Overseas Pension Scheme is a currently-relieved non-UK pension scheme. In 2014-15 Ivan is a currently-relieved member of this scheme with a pension input amount of £65,000 under the scheme. Ivan’s pension input amount is adjusted by the appropriate fraction to £60,000. The annual allowance that year is £40,000.

In the previous three tax years Ivan’s pension input amounts were:

2013-14 - £45,000 - to the XYZ Overseas Pension Scheme

2012-13 - £30,000 - to the XYZ Overseas Pension Scheme

2011-12 - £25,000 - to the A N Other Overseas Employer Pension Scheme

For 2013-14 Ivan qualified for UK tax relief in respect of his pension savings and his pension input amount for that year after application of the appropriate fraction was £42,000. The annual allowance for 2013-14 was £50,000 so Ivan has £8,000 unused annual allowance to carry forward.

In 2012-13 Ivan did not qualify for any UK tax relief, so the annual allowance rules did not apply to his pension savings. Because of this there is no adjustment by the appropriate fraction to Ivan’s pension input amount of £30,000 for that year. The annual allowance for 2012-13 was £50,000 so Ivan has £20,000 unused annual allowance to carry forward.

In 2011-12 Ivan did not qualify for any UK tax relief in respect of his pension savings. Also as Ivan’s pension savings were made under a different pension scheme they are outside the reach of paragraph 9A Schedule 34 Finance Act 2004 and so there can be no carry forward of any unused annual allowance.

In summary, Ivan has unused annual allowance to carry forward as follows:

2013-14 - £8,000

2012-13 - £20,000

2011-12 - nil

This means Ivan has a total of £28,000 unused annual allowance to carry forward.

Together with the £40,000 annual allowance for the tax year, Ivan can have pension input amounts of £68,000 in 2014-15 without the annual allowance charge being due.

Ivan’s total pension input amount for the 2014-15 tax year is £60,000, which is £8,000 less than his available annual allowance. Ivan does not have to pay the annual allowance charge.

Ivan has used up the annual allowance for the current tax year (£40,000 for 2014-15). He has also used up the £20,000 unused annual allowance from 2012-13. Ivan still has £8,000 unused annual allowance from 2013-14 to carry forward to the next tax year. Note: there is a strict order of the use of unused annual allowance (see PTM055000).

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Currently-relieved member was not a member of the currently-relieved non-UK pension scheme for any of the previous three tax years?

A currently-relieved member of a currently-relieved non-UK pension scheme who was not a member of the scheme in any of the last three tax years might still be able to carry forward any unused annual allowance. It would be possible only if, during one or more of those years, the individual was a member of a registered pension scheme or a member of another overseas pension scheme in respect of which the individual got UK tax relief for the year concerned and the individual has unused annual allowance to carry forward. Otherwise the individual will not be able to carry forward any unused annual allowance.

Where the individual has been saving in a registered pension scheme in one or more of those previous three tax years, the amount of unused annual allowance that can be carried forward from that year is calculated in the same way as for a registered pension scheme generally.

Carry forward could be possible if the individual has been a member of another overseas pension scheme for any of the previous three tax years and the individual got UK tax relief in respect of that scheme for the year concerned. Then the individual can carry forward unused annual allowance from that earlier year on the same basis as a member of a registered pension scheme generally. But remember, the way the pension input amount is calculated for that tax year in respect of the overseas scheme is modified by the application of the appropriate fraction (see PTM113320 in relation to cash balance arrangements and defined benefits arrangements and PTM113330 in relation to other money purchase arrangements).

Example

During the 2011-12 tax year Anders changed jobs. He left the UK Branch of ABC and returned home to work for A N Other Overseas Employer. As a consequence he left the ABC Overseas Pension Scheme and joined the A N Other Overseas Employer Pension Scheme.

Anders was a member of the A N Other Overseas Employer Pension Scheme for all of the next two tax years - i.e. 2012-13 and 2013-14 and was not a member of any other pension scheme during that period.

Then, during the tax year 2014-15 Anders changed jobs again. As a consequence he left the A N Other Overseas Employer Pension Scheme and joined the XYZ Overseas Pension Scheme.

In the same tax year Anders moved to the UK Branch of XYZ and remained a member of the XYZ Overseas Pension Scheme. His total pension savings for 2014-15 in that pension scheme were £70,000.

The XYZ Overseas Pension Scheme is a currently-relieved non-UK pension scheme and Ander’s pension input amount (after application of the appropriate fraction) is £65,000.

In the previous three tax years his pension savings were:

2013-14 - £25,000 (to the A N Other Overseas Employer Pension Scheme)

2012-13 - £30,000 (to the A N Other Overseas Employer Pension Scheme)

2011-12 - £5,000 (to the ABC Overseas Pension Scheme, as modified by the appropriate fraction) and £10,000 (to the A N Other Overseas Employer Pension Scheme)

The A N Other Overseas Employer Pension Scheme was not a currently-relieved non-UK pension scheme for any of the tax years 2011-12, 2012-13 and 2013-14 because neither Anders nor his employer got any UK tax relief on the contributions paid to the scheme during any of those tax years. Also the pension scheme was not a registered pension scheme.

The ABC Overseas Pension Scheme was a currently-relieved non-UK pension scheme for the tax year 2011-12.

For 2014-15 Anders can carry forward unused annual allowance of £45,000 only from the tax year 2011-12 and he cannot carry forward any unused annual allowance from tax year 2012-13 or 2013-14.

For later tax years, Anders cannot carry forward any unused annual allowance from tax year 2012-13 or 2013-14.