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.)

Sara has unused annual allowance of 拢18,000 from previous tax years that she can carry forward to tax year 2017-18.

For the tax year, Sara has 4 arrangements to take into account for annual allowance purposes.

Two of Sara鈥檚 arrangements are hybrid arrangements. Both were set up after 14 October 2014 and provide either defined benefits or other money purchase benefits when Sara retires.

The other 2 arrangements are a defined benefits arrangement and a money purchase arrangement.

In the case of each arrangement, the pension input period ending in the tax year had started after Sara flexibly accessed the money purchase arrangement.

The pension input amounts for each arrangement are:

听	arrangement 1	arrangement 2	arrangement 3	arrangement 4
type of arrangement	hybrid	hybrid	defined benefits	money purchase
defined benefits pension input amount	拢20,000	拢15,000	拢29,000	n/a
money purchase pension input amount	拢8,000	拢1,000	n/a	拢3,000

For annual allowance purposes, Sara must calculate the pension input amounts for each respective hybrid arrangement 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 respective arrangement for the tax year concerned.

For the purpose of the annual allowance for the tax year, Sara鈥檚 total pension input amount is 拢67,000, which is the aggregate of the defined benefits pension input amount for both hybrid arrangements together with the pension input amounts for the defined benefits arrangement and money purchase arrangement (拢20,000 + 拢15,000 + 拢29,000 + 拢3,000).

Sara鈥檚 total pension input amount (拢67,000) has exceeded her available annual allowance for tax year 2017-18 of 拢58,000 (拢40,000 annual allowance plus carried forward unused annual allowance of 拢18,000).

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 Sara鈥� s available annual allowance for the tax year is 拢9,000 (拢67,000 less [拢40,000 + 拢18,000]). This is Sara鈥檚 鈥榙efault chargeable amount鈥�.

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

The further set of steps are to determine if the money purchase annual allowance for the tax year (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 2 relevant hybrid arrangements which means there are 4 possible combinations, one containing both hybrid arrangements, one which is empty and the remaining other combinations containing one or the other of the hybrid arrangements.

For a combination containing a hybrid arrangement, Sara has to use the other money purchase pension input amount instead of the defined benefits pension input amount for the hybrid arrangement concerned.

Where a combination does not contain one or more of the hybrid arrangements, when calculating her 鈥榦ther inputs鈥� Sara has to use the defined benefits pension input amount for the hybrid arrangement not included in the combination.

The 4 possible combinations are made up as follows:

Combination one - hybrid arrangement 1 only

Combination two - hybrid arrangement 2 only

Combination three - hybrid arrangement 1 and hybrid arrangement 2

Combination four - hybrid arrangements 1 & 2 left out.

For combination one, the 鈥榤oney-purchase input鈥� would be

拢8,000 + 拢3,000 = 拢11,000

(arrangements 1 and 4)

For combination two, the 鈥榤oney-purchase input鈥� would be

拢1,000 + 拢3,000 = 拢4,000

(arrangements 2 and 4)

For combination three, the 鈥榤oney-purchase input鈥� would be

拢8,000 + 拢1,000 + 拢3,000 = 拢12,000

(arrangements 1, 2 and 4)

For combination four, the 鈥榤oney-purchase input鈥� would be

拢3,000

(arrangement 4 only).

Of the 4 combinations, one and three result in a 鈥榤oney-purchase input鈥� over the money purchase annual allowance for the tax year of 拢4,000. This means that those 2 combinations go forward for the next stage of calculations for the money purchase annual allowance.

Combination one

Excess of 鈥檓oney-purchase input鈥� over 拢4,000 = 拢7,000

Excess of 鈥榦ther inputs鈥� over the alternative annual allowance = nil

拢44,000 (arrangement 2 using defined benefits pension input amount plus arrangement 3) over the sum of 拢36,000 plus 拢18,000 = 拢0

Note - Sara鈥檚 carried forward unused annual allowance of 18,000 is added to the alternative annual allowance (拢36,000), giving an available alternative annual allowance for the tax year of 拢54,000

Alternative chargeable amount for combination one = 拢7,000

Combination three

Excess of 鈥檓oney-purchase input鈥� over 拢4,000 = 拢8,000

Excess of 鈥榦ther inputs鈥� (拢29,000 for arrangement 3) over the alternative annual allowance (拢36,000) = nil

Alternative chargeable amount for combination three = 拢8,000

Combination three gives the greatest alternative chargeable amount (拢8,000) for the current tax year.

Sara鈥檚 alternative chargeable amount found from Combination three (拢8,000) is less than her default chargeable amount (拢9,000).

This means Sara will be liable for the annual allowance charge on basis of her default chargeable amount for the tax year of 拢9,000.