“Keep calm and carry forward”, higher earners should mop up unutilised pension allowances while reliefs remain generous

10 February 2015

With a UK General Election looming and Labour committed to cutting the level of tax relief on pension contributions for “the very highest earners to the same rate as the average tax payer” the days of effective relief on pension contributions at 40% or 45% could be numbered.  

According to leading advisory firm Tilney Bestinvest, those subject to the higher tax rate this year should strongly consider maximising their pension contributions while they can, including mopping up unutilised allowances from the three prior years under a rule known  as ‘Carry Forward’.*

David Smith, Director of Financial Planning at Tilney Bestinvest, commented: “It is estimated that over 2 million more people will have been drawn into the higher rates of Income Tax over this parliament - and that even under the Prime Minister’s plan to raise the threshold for paying 40% tax to £50,000 by 2020, a further 900,000 will end up paying higher rate tax than they do today.

“For higher earners, investing in a pension is particularly attractive at the moment as contributions are deducted from their earnings when assessing tax, resulting in a tax saving at their marginal rate.

“This means that someone with total earnings of £190,000 (from salary, bonuses and other sources of taxable income) that utilises the maximum annual gross pension contribution this year of £40,000 could deduct £40,000 from their earnings and only pay income tax on £150,000. In doing so they would effectively eliminate their entire 45% tax liability.

“In another example, someone with total earnings of £120,000 who paid a contribution of £20,000 (gross) from their earnings would receive an effective rate of tax relief of 60% due to the fact that they would retain the personal allowance they would have otherwise lost.”

Smith points out that very high earners may be able to further reduce their potential tax liability if they did not fully utilise their annual pension allowances in the three previous tax years when it was at the higher rate of £50,000 per year. This is because of a rule known as ‘Carry Forward’ which allows investors to sweep up unused allowances for the three years since 2011/12, but importantly they can deduct these from current tax year earnings.

“While personal contributions cannot exceed 100% of earned income, employer contributions can exceed 100% of earned income but are still subject to the annual pension allowance limits.”

“For someone who has not used any of their annual pension allowances in the previous three years, the maximum contribution this year could be £190,000. For anyone earning £340,000 or more, the net cost after 45% relief of the contribution would be £104,500.”

In the example below, the investor is eligible to firstly use their £40,000 pension allowance for the current tax year but also  ‘Carry Forward’ unused allowances of £110,000 from the previous three years, leading to a total maximum contribution of £160,000. Assuming the investor earns £300,000 or more, this would require an actual payment of £128,000 into the pension (£160,000 net of 20% tax relief) followed by a tax refund from HM Revenue & Customs of £40,000. In this example, for the investor the net cost of the £160,000 contribution would therefore be just £88,000.


Amount Contributed

Carry Forward










Smith concluded: “Wealth taxes are firmly on the radar of the political parties and while proposals for a ‘Mansion Tax’ have dominated the headlines in this respect, a reduction in pension tax reliefs for higher earners is a serious possibility whatever the outcome of the election. With pensions about to enjoy much greater flexibility, higher earners in a position to make significant contributions should strongly consider doing so while reliefs are available at currently generous levels.”

* ‘Carry Forward’ is a complex area and if you are in doubt as to the suitability of it please contact a financial adviser.

- ENDS -

Important information:

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This press release does not constitute personal advice. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. Please note we do not provide tax advice.

Press contacts:

Roisin Hynes
0207 189 2403
07966 843 699

Matthew Gray
0207 189 2492

About Tilney Bestinvest

Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Bestinvest employs almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.

The Tilney Bestinvest Group of Companies comprises the firms Bestinvest (Brokers) Ltd (Reg. No. 2830297), Tilney Investment Management (Reg. No. 02010520), Bestinvest (Consultants) Ltd (Reg. No. 1550116) and HW Financial Services Ltd (Reg. No. 02030706) all of which are authorised and regulated by the Financial Conduct Authority. Registered office: 6 Chesterfield Gardens, Mayfair, W1J 5BQ.

For further information, please visit: www.tilneybestinvest.co.uk

About Tilney

Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years.  Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.

We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.

Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.