Focus 91 – New year, new planning opportunities
With the start of 2014 under our belts the next focus point is really the end of the tax year. Yes it is nearly 3 months away still but there is planning to be done to maximise pension contributions before the end of another tax year.
Pension input periods (PIPs)
You may well have clients who are already using the PIP for 2014-15 or still in 2013-14 or even a combination of both if they are contributing to multiple schemes. It is worth checking what PIP they are in at the earliest opportunity. Don’t take it as read that it will be aligned to the tax year end. Many company schemes are tailored to suit other dates for the company, such as calendar year or company year; personal schemes often have a default of tax year but can generally be changed if requested. In addition there are the schemes that still record PIPs based on the date of the first contribution. In the most extreme cases there are scenarios where a series of single contributions have started successive PIPs within one scheme, due to the structure of multiple arrangements. This all doesn’t make for easy planning. Once you have all the information it will be a lot clearer.
Once you know which PIP or PIPs they are contributing to then it is time to work out what they can contribute. Where you have a scheme in 2013-14 PIP and one in 2014-15, then it is generally best to maximise the oldest contributions first, so try to contribute to the 2013-14 PIP if it is possible. This is essential especially if the use of carry forward may be required. In this case if you are using Carry forward in a 2013-2014 PIP, you can carry all the way forward from the PIP ending in 2010-11, if there is unused allowance available.
There are many things to remember when looking at carry forward or contribution levels in general. The annual allowance applies to all contributions to pension schemes, including gross employer contributions, the grossed up amount of any net personal contribution and any pension term assurance payments. In addition, it mustn’t be forgotten that for personal contributions there must be earning in the tax year in which they are paid to support them, not in the carry forward year. Employer contributions are not limited by earnings but the corporation tax relief they would receive is limited by the ‘wholly and exclusively rules’.
You have the added limitations with the annual allowance dropping in 2014-15 to £40,000 so using as much carry forward as possible could be essential for high earners.
In specie contributions
For those that are asset rich and cash poor, in specie contributions are a good way to maximise tax relief without the need to come out of the market or sell an asset to a third party. However, when considering the opportunities of in-specie contribution don’t forget the time they can take to process. This could be a great opportunity to get assets into the scheme to maximise tax relief and get these assets into a tax privileged environment. They are however treated as a disposal for capital gains tax so that will need to be factored in too.