The Corsair Chancellor spies pension booty on tax-payer Treasure Island

With the Treasury having conducted a consultation on pension tax relief, the industry will be watching the next Budget for the Chancellor’s response.

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Julia Grimes
Published: 18 Jan 2016 Updated: 03 May 2016

Use ‘Carry Forward’ to shore up your pension allowances

With Her Majesty’s Treasury having conducted a consultation on the future of pension tax relief, the financial services industry will be watching the next Budget on 16 March for news of the Chancellor’s response. There is a widespread expectation that the Chancellor will call time on the days of pension tax relief at an investors’ marginal rate of income tax for those subject to the higher bands.

According to leading investment and financial planning firm Tilney Bestinvest, those subject to the higher tax rates of income tax this year should strongly consider maximising their pension contributions while they can, as it really could be their last chance saloon to do so at such attractive levels of relief.

David Smith, Director of Financial Planning at Tilney Bestinvest, commented:

“Whilst one can never be absolutely certain of what the Government will announce within a Budget, there has been a great deal of noise that the next one will see the end of the ability to achieve higher rate tax relief on pension contributions with one of the options being a flat rate of relief of 33%. This would still be attractive to most, but is far less generous that current potential relief of 40% of 45% for higher and additional rate taxpaters. As a result of this, ensuring that you have used all allowances available to you if you are in a position to fund them and achieve such attractive levels of relief while they remain available, is crucial ahead of any changes. Quite simply, higher earners have never had it so good in terms of pension tax reliefs but the sun looks like it is going to set on the Golden Age of pension tax relief.”

Keep calm and carry forward…

Smith points out that very high earners may be able to further reduce their potential tax liability this year if they did not fully utilise all their annual pension allowances in the three previous tax years, two of which were when the annual pension allowance was at the higher rate of £50,000 per year. This is because of a rule known as ‘Carry Forward’*, which allows savers to mop up unused allowances for the three years previous once they have exhausted their current year’s pension allowance. Importantly, this utilising of hitherto neglected allowances is set against the current tax year’s earnings.

Smith explained: “It should be noted that personal contributions cannot exceed 100% of earned income. While employer contributions are able to exceed this amount, they are still subject to the annual pension allowance limits.”

“For someone who has not used any of their annual pension allowances this year or the previous three years, the maximum contribution this year could be £180,000 (due to a change in legislation, in some instances it could be possible to contribute up to £220,000 during the current tax-year). For anyone earning £330,000 or more, the net cost after 45% relief of the contribution would be £99,000. That is, clearly, incredibly attractive and not all of the relief is trapped inside the pension. Furthermore, the individual would immediately be removing the gross pension contribution from their Estate for inheritance tax purposes, which could represent a further 40% tax saving!”

In the example below, the investor is eligible to firstly use their £40,000 pension allowance for the current tax year but also ‘Carry Forward’ unused allowances of £100,000 from the previous three years, leading to a total maximum contribution of £140,000. Assuming the investor earns £290,000 or more, this would require an actual payment of £112,000 into the pension (£140,000 net of 20% tax relief) which would then be topped up by the state by £28,000. The investor would then also be eligible for a further tax refund from HM Revenue & Customs of £35,000 through their self-assessment process which would not be tied up within the pension. In this example, for the investor the net cost of the £140,000 contribution would therefore be just £77,000.


Annual Allowance

Amount Contributed

Carry Forward













Pensions versus property

Smith added: “Whilst consumer research has shown that many perceive Buy-to-Let property ownership as a desirable way to fund a retirement, often due to the tangible nature of the asset, the Chancellor has recently had it in his cross hairs. The impact of many of the most recent changes is yet to be seen, but with an increase in stamp duty it could diminish demand as it is likely to reduce profit margins on subsequent sales but also dampen buyers’ demand. This is compounded by further changes meaning that the ability to offset buy-to-let mortgage interest against rental income for tax purposes will gradually reduce. This could result in an additional tax bill of many thousands of pounds for higher rate tax payers.

After the raid on Buy-to-Let, pension tax reliefs are next target…

Smith concluded: “We think that following on from his swashbuckling raid on Buy-to-Let property investing, the next source of plunder for our Corsair Chancellor will be pension tax reliefs. With pensions still the key source of income during retirement, higher earners in a position to make significant contributions should strongly consider doing so while reliefs are available at currently generous levels. Those that do not have cash available might consider carefully realising existing non-pensions investments, within their annual capital gains tax allowances, to fund such contributions. But the clock is ticking to potentially act this tax year.”

To discuss this issue or any other financial planning topic please contact David Smith on 0191 269 9970 /

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* ‘Carry Forward’ is a complex area and if you are in doubt as to the suitability of it please contact a financial adviser.

Important Information

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This press release does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers. Past performance is not a guide to future performance. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. Please note we do not provide tax advice.

Press contacts:

Jason Hollands
0207 189 9919 / 07768 661382

Matthew Gray
0207 189 2492

About Tilney Bestinvest

Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Bestinvest employs almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.

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This release was previously published on Tilney Smith & Williamson prior to the launch of Evelyn Partners.