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Depending on the age of the individual, he or she may contribute a certain percentage of their net relevant earnings to a pension fund. Where the contribution is less than the maximum allowed, the shortfall is stored as unused relief.
Unused relief may be held for up to six years. The relief is used when an excess premium is paid (paid more than the maximum allowed). The oldest relief is used first.
Seven-year-old unused relief may be utilised by carrying back a contribution to the preceding year. The amount carried back must be sufficient, taken in conjunction with the preceding year's contribution, to exceed that years maximum allowable contribution. For unused relief is absorbed only when the maximum limit is breached.
Tax relief will only be given where:
The pension contribution does not exceed the maximum allowed plus the total unused relief; and
The gross contribution does not reduce the client's income below the level of personal allowances.