Exceeding the Annual Allowance

Providing SPPA  have the relevant information from employers we will automatically provide members with the pension input amount for the relevant tax year where members have breached the Annual Allowance.  We will also provide the pension input amount for the three previous tax years if available. It is the members responsibility for establishing if they are subject to tapering or the Alternative Annual Allowance and calculating any Annual Allowance charge. A calculator to aid with this is available on HMRCs website along with information on tapering and the Alternative Annual Allowance.

If you exceed the Annual Allowance there may be an annual charge to pay. This is not at a fixed rate but depends on how much taxable income you have and the amount of pension saving in excess of the Annual Allowance. To calculate this you need to work out the rate of tax that would be charged if your excess pension savings were added to your taxable income and taxed based on your marginal income tax rate.

If you have any unused Annual Allowance from the previous three tax years this may be used to offset against an Annual Allowance charge in the relevant tax year. You can ‘look back’ up to three previous tax years to see if you have any unused allowance from these years and if so, you may be able to ‘carry forward’ the unused allowance and add it to your Annual Allowance limit in the current tax year. This may prevent an Annual Allowance Charge being payable.

It is the members responsibility to check whether they have any used allowance from the preceding three tax years to carry forward to the relevant tax year and assessing if there is any tax liability.

Link to Scottish Government Website