The Annual Allowance is the maximum amount an individual can receive into their pension fund during the current tax year from all sources without a tax charge. For 2007/08 this amount is £225,000. However, when a contribution is made, the policy is automatically set up with an input period of 12 months and this contribution is assessed against the Annual Allowance in the tax year in which the input period ends (i.e. 08/09 and an annual allowance of £235,000).
Therefore if no previous contributions have been made, it may be prudent for an individual to receive a contribution of up to £225k and adjust the input period to end in the current tax year 2007/2008. This utilises the Annual Allowance for the current tax year, and preserves the maximum contribution ability for all future years. This provides the maximum amount of flexibility and contribution potential for future years for some of your best clients.
If the input period is not adjusted, then the amount that can be contributed in 2008/09 is reduced and this years allowance is not fully utilised.
If you are planning to change a client’s input period to maximise contributions, make sure that the provider is able to do this.
