Never been a member of any pension scheme, can I contribute more than £40k allowance?

moneysaver21

I have never been a member of any pension scheme. This year, I want to put £75k in a pension but can't because the limit is £40k.

I believe you can only carry forward previous year allowances if you have been registered in a pension scheme. I haven't.

According to a financial advisor I spoke to, they said there is a way for me to put in £75k this year. I don't know if this is true or a scam.


Would be grateful for any comments/opinions!

atush

I dont know of a legal way, unless you are a limited company and have the company pay in for you.

How much do you make? If you dont make 40 or over you can pay in 40K. Does your employer have a pension plan?

I would invest the rest of the money in a S&S isa and move to pensions in the following years.

Aegis

With the right pension you can pay in £40k now, close the pension input period, open a new one and use next year's allowance early. This tends to confuse matters for future years, so only do this if you a) need to and b) either know about the consequences or are paying someone to know about the consequences for you.

moneysaver21

Thanks!

I made over the 75k this tax year

Aegis, but I don't plan to earn anything in the tax year to 2016. Can I still use next years allowance early?

Aegis

moneysaver21 wrote: »

Thanks!

I made over the 75k this tax year

Aegis, but I don't plan to earn anything in the tax year to 2016. Can I still use next years allowance early?

Yes. Accessing the following year's allowance early doesn't affect the date of the contribution and therefore the test against earnings for tax relief purposes. It only affects how much you can pay in and avoid an annual allowance charge.

moneysaver21

I have sent you a PM

moneysaver21

Aegis wrote: »

Yes. Accessing the following year's allowance early doesn't affect the date of the contribution and therefore the test against earnings for tax relief purposes. It only affects how much you can pay in and avoid an annual allowance charge.

But in the next tax year, my earnings will be £0, so the allowance would be £0?

thenudeone

Yes.

The maximum you can pay in to a pension and get tax relief is your earnings for the tax year.

Even if you have unused £40k "allowances" (or whatever the value was at the time) from previous tax years, you still can't use them if you don't have enough earnings in the current tax year.

moneysaver21

So 2014-2015 earnings will be 100k for example
2015 - 2016 earnings will be 0k


Still possible to put in 70k this tax year? And get full tax relief at the higher tax rate?

Aegis

But in the next tax year, my earnings will be £0, so the allowance would be £0?

Not quite. The annual allowance is tricky. In this instance the annual allowance is 40k this year and 40k next year, but by closing the 2014/15 input period and opening the 2015/16 input period you gain access to an additional £40k of income. Your annual allowance is therefore £80k, but split into two input periods which happen to have a boundary within a tax year.

Any contributions you make are tested against the annual allowance first to determine whether they are eligible for income tax relief at all. In this case, if you opened the SIPP and paid in £40k gross, closed the input period and paid an additional £30k gross into a new input period, you would be within your overall annual allowance. You then move on to part two of the test, which is against your taxable income for the year.

The second test is against income earned during the tax year in which the contribution is actually paid into the pension and ignores the input periods at this point. As such, tax relief is against income earned between 6 April and 5 April regardless of input period, which is what allows greater contributions to be tested against current income than might otherwise be expected.

moneysaver21 wrote: »

So 2014-2015 earnings will be 100k for example
2015 - 2016 earnings will be 0k


Still possible to put in 70k this tax year? And get full tax relief at the higher tax rate?

Only just - you'd need to be acting immediately to open a pension and manipulate the input period before the end of the tax year. It might even be too late, but this depends on the provider and how easily you can make use of this little-known manipulation.

kidmugsy

moneysaver21 wrote: »

Still possible to put in 70k this tax year? And get full tax relief at the higher tax rate?

That depends on your income for this tax year. What is it?