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Any part or all of a contribution made in the current tax year
may be carried back to the previous tax year for relief purposes,
and indeed, to the year before that, if there were no net relevant
earnings in the previous year.
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Under rules applying to personal pensions from 6 th April 2001, a contribution must be paid and an election to carry back made by 31 st January in the tax year in which the payment is made e.g. 2004/05 a contribution must be made and an election made by 31 st January 2005 if the contribution is to be carried back to 2003/04.
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For RAPs, an election to carry back contributions has to be made by the 31st January following the end of the tax year in which the contributions are made e.g. A payment in the 2003/04 tax year must have been subject to an election on or before 31 st January 2005 to carry back to 2002/03. The contribution have to be received by the provider on or before 6th April of the current tax year.
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Contributions carried back in this way are treated as though they
had been paid in that year - tax rates and contribution limits for
that year apply.
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This exercise can be beneficial; for example, if one's marginal
rate of Income Tax was higher in the year to which contributions
were carried back, the higher tax relief is gained.
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Using carry forward and carry back in conjunction may allow contributions
to be paid in respect of earnings over a 7 or 8 year period. This
only applies to retirement annuities as personal pensions may only
use carry back. The contributions paid must not exceed NRE in the
year against which relief is claimed. (i.e. normally NRE for the
current tax year, or, if carry back is used, the preceding year).
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N.B. Total contributions must not exceed total taxable earnings
in the year of payment.