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High earners: increase your pension allowance by up to £120,000

We look at a tool that could help you maximise your pension contributions and tax relief.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Generally, the most you can pay in to your pension each tax year is £40,000.

But for high earners with ‘adjusted income’ of over £150,000 - your annual allowance could be as little as £10,000.

There’s good news though. High earners can potentially invest much more than this in their pension and receive extra tax relief, if they use a little-known rule called 'carry forward'.

But this tax year ends on 5 April, so you’ll need to act quickly if you want to take advantage in the 2018/19 tax year. Read on to find out how.

Pension and tax rules change, and their benefits depend on your circumstances.

How does carry forward work?

If you want to make the most of your pension, carry forward lets you take advantage of any unused allowance from the previous three tax years. That’s up to £40,000 from each year.

Including the current tax year, that could mean you’re able to make a pension contribution of up to £160,000 and receive tax relief. If you’re a 45% taxpayer, for example, the actual cost to you could be as low as £88,000, with the government giving you back as much as £72,000 in tax relief.

Some higher earners may be affected by the tapered annual allowance (TAA). If your ‘adjusted income’ is over £150,000, your annual allowance could be reduced to as little as £10,000. Your adjusted income is broadly defined as your total taxable income, plus any pension contributions paid by your employer.

Anyone who was affected by the TAA in a previous year, will only be able to carry forward their unused tapered allowance from that year.

If you want to claim back the full amount of tax relief, you have to pay enough tax at the relevant rate. Our tax relief calculator can show you how much you could get.

To use carry forward, there are two requirements:

  1. You had a pension in each year you wish to carry forward from, whether or not you made a contribution (the State Pension doesn’t count).
  2. You have earnings of at least the total amount you are contributing this tax year. Alternatively, your employer could contribute to your SIPP.

It can be confusing, so here's an example:

Tax year Annual allowance Contributions made Unused allowance
2015/16 £40,000* £15,000** £25,000
2016/17 £40,000 £5,000 £35,000
2017/18 £40,000 £40,000 £0
2018/19 (current) £40,000 £40,000 £0

Remaining allowance in 2018/19 using carry forward: £60,000

*Only pension contributions registered from 9 July 2015 to 5 April 2016 are usually included. The exception is if total contributions registered from 6 April 2015 to 8 July 2015 were more than £40,000.

**All contributions made after 8 July 2015.

Remember, money in a pension cannot normally be accessed until age 55 (57 from 2028), up to 25% tax-free and the rest taxed as income.

Carry forward calculator

Act before 5 April and make up for lost years

Carry forward is a great way to make up for any missed contributions. Remember, Friday 5 April 2019 is your last chance to carry forward your unused allowance from the 2015/16 tax year. If you don’t use it now, it will be gone forever.

Read more about carry forward

If you have any questions, just call our carry forward helpline on 0117 314 1799. Our team can talk you through your options.

How to make a SIPP contribution before 5 April

A SIPP (Self-Invested Personal Pension) is a type of pension that allows you to choose all your own investments. SIPPs also make it easy for you to manage your pension.

Find out more about the HL SIPP

You can make a contribution to the HL SIPP in just a few minutes with your debit card online.

You’ll need to be comfortable making your own investment decisions, but you don’t need to make any decisions today. Sometimes our clients add money to their SIPP before the deadline, get their tax relief, and choose their investments in their own time. When you’re ready, you might find our SIPP investment ideas helpful.

Before you make a pension contribution, please make sure you understand the risks and that you've read the key features (including the contribution checklist and important investment notes) and terms and conditions (including Tariff of Charges).

This article isn't personal advice. Please remember that investments can go down as well as up in value, so you could get back less than you put in. If you’re not sure which investments are right for you, we can put you in touch with an adviser.

What help is available?

If you have any questions at all about the HL SIPP or carry forward, just call our pensions helpdesk on 0117 980 9926. Our team can talk you through your options at a time that works best for you. Our opening hours are:

  • Mon - Thurs - 8am to 7pm
  • Fri - 8am to 6pm
  • Sat - 9:30am to 12:30pm

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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