In Focus: Tax planning  

How to help clients use carry forward

  • Explain how carry forward works
  • Identify the tax benefits of making use of unused pensions allowances
  • Describe how the annual allowance affects carry forward contributions
CPD
Approx.30min

This will be minus any contributions they may have already made.

One way around the ceiling may be to stagger the payment to maximise the client’s annual allowance over three years.

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It may be worth paying some of the inheritance into a spouse's pension, so long as that partner is earning and has a UK-registered pension scheme.

When to use carry forward?

Clients who use carry forward need to be aware of the implications of putting more money into a pension at the detriment of their current income, for example if they still have debts, or a mortgage.

Clients who are aged 55 or over may be better placed to defer their income in the short term.

Moffat points out that those nearing retirement, over age 55, can use carry forward to increase their pension as a shorter-term savings vehicle, or maximise their tax-free cash lump sum.

Moffat warns that any contributions made by an individual, or a third party, need to be supported by relevant UK earnings, employer contributions do not.

She says: “Having the correct paperwork and documentation is essential.”

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. Which clients can benefit from carry forward, according to the author?

  2. Clients need to have been in a UK-registered pension scheme to be able to qualify for carry forward. True or false?

  3. What conditions should clients consider when it comes to carry forward?

  4. If a client has put a lump sum into flexi-access drawdown but not taken income they can still use carry forward. True or false?

  5. What happens if clients put a large inheritance into a pension?

  6. If a client has started to take benefits from their pension there are strict limits on carry forward. True or false?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Explain how carry forward works
  • Identify the tax benefits of making use of unused pensions allowances
  • Describe how the annual allowance affects carry forward contributions

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