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Pensions Tax Relief: What are you being asked on that exam?

Pensions Tax Relief: What are you being asked on that exam?

If you’re studying for the CII R04 exam you might have noticed a warning about the importance of reading an exam question carefully. This article discusses pensions tax relief and is relevant for anyone studying for the AF5, AF7, AF8, R04, or R06 exams.

This article is relevant to examinable tax year 2018/19

Those studying for the R04 exam may have noticed the rather prominent ‘be aware’ box in Chapter 2:1 regarding the annual allowance and money purchase annual allowance which points out the importance of reading an exam question carefully on tax relief to make sure you know what you are being asked.

Not Related to AA or MPAA

The point being made is that the initial entitlement to tax relief on a pension contribution is not actually related to the annual allowance (AA) or the money purchase annual allowance (MPAA).

Individuals get tax relief on the contribution when it’s made (or a couple of months later, in reality) based on their relevant UK earnings (or £3,600) even if the contribution is more than the MPAA or the AA.

The MPAA and AA is taken into account when the individual completes their self-assessment tax return. At this point, it can be seen if that person is able to keep all the tax relief they have been awarded or has to pay the annual allowance charge.

As you know, the annual allowance for this tax year is £40,000, whereas for previous years it has been higher.

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Carry Forward

To use carry forward from a previous year, an individual must have been a member of a registered pension scheme at some point in the earlier tax year.  You should note that all the person needs to be is a member; it doesn’t mean there needs to have been any pension contributions.

For example, if an individual makes a one-off contribution into a personal pension in August 2014 they have become a member of that scheme in tax year 2014/15.  If they make no further contributions, they are still a member so can use carry forward for the last three years 2015/16, 2016/17 and 2017/18.

Grab the resources you need!

If you’re studying for your CII R04 exam, and you’re wanting to feel confident on exam day, grab our free taster to try out one of Brand Financial Training’s mock exam papers for yourself.  Click the link to download the R04 mock exam taster now!

Click here to download our free taster mock paper for CII R04

Alternatively, you can download the taster for AF5, AF7 or R06  if one of those exams is causing you some sleepless nights.