Pension Carry Forward Decision

DesG

Don't forget there is a new tax year in just over a month for another ~70K assuming you are still working, assuming 70K is your normal earnings.

Triumph13

pwootty wrote: »

Top up with this year gross salary = £70k
Basic rate tax 20% contribution = £17.5k
So total pension contribution = £87.5k?

No, your GROSS contribution is limited to £70k, not your net.
If you have no other pension contributions in the year then the sum is top up with £56k and get £14k of tax relief added to bring it up to the £70k

pwootty

Aaaaarrrgghhhhhh why are pensions so difficult!

I've established now that I have a pension annual allowance of £70k which qualifies for tax relief (if I go above this I face a tax charge of 40% of the excess contribution - ouch).

So now we have difference of opinion;
is it £70k gross total include basic rate tax relief or excluding it?
Big difference chaps!

thanks

Triumph13

I can't see any difference of opinion. Everyone seems to have been quite clear in their replies to you that you are limited to £70k gross contributions.


Your most sensible way forward is going to be:

• Work out what your gross earnings for this tax year will be,
• Subtract what your existing employee's pension contributions will be,
• Maybe round down a little as a safety margin
• Multiply by 0.8 and contribute this amount to your pension of choice
• Contribute the rest of what you want to put in after the start of the new tax year.

jem16

pwootty wrote: »

So now we have difference of opinion;
is it £70k gross total include basic rate tax relief or excluding it?
Big difference chaps!

thanks

There's been no difference of opinion on all the replies, apart from your own. I think you are misunderstanding the terminology.

When we say a gross contribution that means your contribution plus basic rate tax relief. HMRC always talk about gross contributions and this is what tax relief is based on.

If you pay into a Relief at Source pension such as a SIPP/PP or stakeholder it is always the net payment that you make - ie the gross payment minus basic rate tax relief as Triumph13 showed you with the £70k example. The pension provider will then add the basic rate tax relief and you can claim for any higher rate tax relief from HMRC.

With a £70k earnings limit, you can only make a £70k gross contribution as has already been said. That means you can pay in £56k and expect to receive tax relief. This is the total of all your contributions, regular or one-off.

jamesd

pwootty wrote: »

Interest point that I didn't know the "Carry Forward" tax relief is only on the earned income for the tax year of the contribution.

It isn't. There's no such thing as carry forward relief. What carry forward lets you do is get normal pension income tax relief on amounts above the 40k limit, but still no more than your earned income.

pwootty wrote: »

I was planing to max out this year's allowance (£40k) and back fill the previous 3 years (£50k each). So can I make a one off payment equivalent to my Gross earning for this year (approx £70k), and get the full HRT tax relief on it?

You can't do that. The total amount of all pension contributions made by you that will qualify for tax relief is your 70k of earned income. You also can't do that and get higher rate relief on it all because you only have about 28k of higher rate income, so that's the maximum amount of pension contributions on which you can receive higher rate income tax relief.

pwootty wrote: »

Also if I wish to fill the remaining carry forward amount, that will be eligible to be topped up by basic rate tax.

You would initially get basic rate relief on the portion of your taxable income this year that is paid into a pension. Then you would have to repay it to HMRC because you would have exceeded your earned income and it is only that income on which you qualify for the tax relief.

pwootty wrote: »

So outstanding carry forward gross amount =£100k
Top up with this year gross salary = £70k
Basic rate tax 20% contribution = £17.5k
So total pension contribution = £87.5k?
HRT Relief claimable on the £70k? (£70k-£40k x 20% = £6k)

Nope, not even remotely close to being right, which is this:

Maximum pension contribution qualifying for tax relief this year: £70k
Annual contribution limit: £40k, blocks 70k payment
Need to use this much carry-forward to contribute 70k: £30k
After carry-forward of 30k the 70k is permitted.
HR relief claimable on: £70k - £41866 = £28134
Basic rate relief claimable on: £41866

pwootty wrote: »

Remaining £12.5k gross carry forward amount, I can make a £10k payment but will get no HRT relief on it.

You're not eligible for any income tax relief at all on anything above £70k this year. Nothing to do with carry-forward changes that. If you pay the money into a pension and get tax relief added you must either declare it to HMRC so they can reclaim the relief from you or commit tax fraud.

jamesd

pwootty wrote: »

I've established now that I have a pension annual allowance of £70k which qualifies for tax relief (if I go above this I face a tax charge of 40% of the excess contribution - ouch).

Yes, that's correct.

pwootty wrote: »

is it £70k gross total include basic rate tax relief or excluding it?

Gross, including the basic rate relief.

Try this tax relief calculator. It knows about the various restrictions and will tell you what we've been telling you if you try to do something that would break the rules.

pwootty

Okay folks, I think I finally got my head around it, your help is greatly appreciated.

Here's my figures;

Gross pay: £72.1k
Gross pension paid this FY: £20.2k
Gross balance available: £51.9k
Net contribution: £41.5k

So I'll make a contribution of £41k next week.

Thanks