Stand-out Q – annual allowance…


THU, 20 NOV 2014

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The changes in pension legislation seem to suggest pensions could become of greater use in estate planning. An adviser has a client, who is a UK resident, has no relevant UK earnings at present, however they are cash rich. Can they fund a pension and what is the position regarding annual allowance?

There is, under the legislation, no limit to the amount that can be saved in a pension, however there are mechanisms in place to control the tax advantages of saving via a pension. These include the annual allowance, lifetime allowance and the tax relief available. For personal contributions the latter is limited to gross contributions up to the level of the individual’s relevant UK earnings. In theory an individual with no relevant UK earnings could pay gross contributions, presuming the provider was prepared to accept the contribution. Whilst the contribution has not received tax relief it is still regarded as a “relievable pension contribution” for pension input amount purposes and will therefore count towards the individual’s annual allowance. Thus, if they were to pay a gross contribution that exceeded their annual allowance, they would be liable for an annual allowance charge on the excess.

If an individual has no relevant UK earnings, they can contribute up to £2,880 each year and receive tax relief, taking the gross contribution up to £3,600. There is no carry forward available though.

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