188体育

Section 227D Finance Act 2004

Example

Sara is subject to the money purchase annual allowance for tax year 2017-18 due to flexibly accessing a money purchase arrangement in the previous tax year. The tapered annual allowance does not apply to Sara for the tax year.

The annual allowance for the tax year is 拢40,000.

For the money purchase annual allowance for the tax year there is a 拢4,000 allowance for 鈥榤oney-purchase inputs鈥� and the alternative annual allowance for 鈥榦ther inputs鈥� is 拢36,000 (拢40,000 less 拢4,000). (If the tax year had been 2016-17, respectively, the money purchase annual allowance and the alternative annual allowance would be 拢10,000 and 拢30,000.)

For the tax year, Sara has one arrangement to take into account for annual allowance purposes. The arrangement is a hybrid arrangement which was set up after 14 October 2014.

The hybrid arrangement may provide either defined benefits or other money purchase benefits when Sara retires.

The pension input period ending in the tax year for the arrangement had started after Sara flexibly accessed the money purchase arrangement.

For annual allowance purposes, Sara must therefore calculate the pension input amount as if the arrangement had been a defined benefits as well as an other money purchase arrangement. Ordinarily, whichever is the greater of those amounts is the pension input amount for the arrangement for the tax year concerned. For the tax year, she determines her defined benefits pension input amount for the arrangement is 拢15,000 and her other money purchase pension input amount is 拢12,000.

For the purpose of the annual allowance for the tax year, Sara鈥檚 total pension input amount is 拢15,000 (i.e. the defined benefits pension input amount for the hybrid arrangement).

Sara鈥檚 total pension input amount (拢15,000) has not exceeded the annual allowance for the tax year (拢40,000). This means that the amount of Sara鈥檚 total pension input amount which would be chargeable to the annual allowance charge by reference to the annual allowance for the tax year is nil (the 鈥榙efault chargeable amount鈥�).

However, for the hybrid arrangement, the 拢15,000 defined benefits pension input amount is greater than the 拢12,000 other money purchase pension input amount. This means that the arrangement is a relevant hybrid arrangement and that a further series of steps therefore needs to be carried out using the hybrid arrangement in different combinations.

The further set of steps are to determine if the money purchase annual allowance (拢4,000 in this case) is exceeded and, if so, the greatest amount that would be chargeable to the annual allowance charge by reference to the money purchase annual allowance (the 鈥榓lternative chargeable amount鈥�).

Sara must then compare the alternative chargeable amount against the default chargeable amount. The alternative chargeable amount will apply for the tax year if it exceeds the default chargeable amount. Otherwise the default chargeable amount will apply.

Sara has only one relevant hybrid arrangement which means there are two possible combinations, one containing the hybrid arrangement and one which is empty.

For the combination containing the hybrid arrangement, Sara has to use the 拢12,000 other money purchase pension input amount instead of the 拢15,000 defined benefits pension input amount.

For the empty combination (i.e. not containing the hybrid arrangement), Sara has to use the 拢15,000 in the defined benefits pension input amount.

Of the two combinations, only the first results in a 鈥榤oney-purchase input鈥� and it exceeds the 拢4,000 money purchase annual allowance. This means the alternative chargeable amount is worked out on this basis.

The 鈥榤oney-purchase input鈥� for the hybrid arrangement is 拢12,000, giving an excess 鈥榤oney-purchase input鈥� of 拢8,000 (拢12,000 less 拢4,000).

There are no 鈥榦ther inputs鈥� to be tested against the alternative annual allowance part of the money purchase annual allowance. (If there were any that meant the alternative annual allowance was exceeded, the excess would be added to the 鈥榤oney-purchase input鈥� excess.)

This means the greatest amount chargeable to the annual allowance charge by reference to the money purchase annual allowance is 拢8,000, which is Sara鈥檚 alternative chargeable amount.

Sara鈥檚 alternative chargeable amount (拢8,000) exceeds her default chargeable amount (nil).

This means Sara is liable for the annual allowance charge on 拢8,000 for the tax year.