HMRC do not pay tax relief on any carry forward contributions?

eyeonretirement

I have been told this by my platform, is this true. Thought if I earned 41,000 (net) this year and had contributed 6000 already I could still contribute 41,000 gross (32800 net) if I had unused carry forward contribution from the previous 3 years ( eg if I have only being contributing 6000 per year previously. So I thought I could contribute the 32800 as a lump sum at the end of the year ( after having paid in 6000 over the months) and the platform would claim the 20% tax back to make it up to 41,000.

I am having real trouble getting my head round this and feel like just adding a further 26,800 (32,800-6000) so my gross contributions will be 40,000 with the tax claimed back and avoid the whole carry forward contribution thing.

xylophone

http://adviser.royallondon.com/pensions/technical-central/information-guidance/contributions-and-tax-relief/carry-forward/

Does this help at all?

eyeonretirement

Thanks for the link. I still read it the same way as I have written in the first post. I should be able to utilise carry forward rules for the next 3 years and contribute up to the value of my net earnings that year, so if I earn 41,000 net I should be able to make a lump sum contribution of 32800 and the platform claim the tax relief of 8200 to make it up to 41000. No?

coyrls

I thought that they report to the HMRC and also write to you to warn that you may have exceeded the annual limit if you exceed a gross contribution of £40,000 in one tax year but that shouldn't affect them claiming tax relief on your contributions.

Perhaps I'm wrong and they will only claim tax relief on £40,000 in any one tax year and you need to claim the rest through your tax return but I've never heard of this. I have made a contribution of over £40,000 in the past using carry forward but this was spread over two schemes (occupational and SIPP) and I didn't exceed £40,000 in any one scheme. I didn't need to to anything special to get tax relief but as I say I didn't exceed £40,000 in a single scheme.

zagfles

As I keep saying on here, the key is not to confuse, or attempt to combine, the two separate pensions limits:
1) The annual allowance, and
2) The "100% of earnings/3600" tax relief limit

1) can be carried forwards etc, 2) can't.
1) includes employer contributions, 2) doesn't
1) is measured over "pension input periods", 2) is always the tax year.

If your pension inputs have only been about £6k pa in recent years and you now want to contribute a bit over £40k, you will be nowhere near the annual allowance with carry-forwards, so you can forget about it.

You are just limited by the "100% of earning/3600" limit. So your gross contribution this tax year will be 100% of your "relevant earnings" (this is basically employment income or similar, not unearned income, eg interest/dividends/pensions), or £3600 if greater. As above, there is no carry-forwards on this limit.

coyrls

But the OP earns £41,000 and wants to contribute £41,000 gross and so is not breaching the 100% of earnings limit.

zagfles

coyrls wrote: »

But the OP earns £41,000 and wants to contribute £41,000 gross and so is not breaching the 100% of earnings limit.

The OP seems very confused about carry forwards, when the AA is simply not an issue if his pension inputs have only been about £6k per year in recent years and he's only looking at putting a little over £40k in this year.

He seems to be wanting to put £41k gross on top of £6k gross this tax year, that would be over the tax relief limit if his earnings are £41k gross. But £41k seems to be net earnings so he might be OK.

OP your GROSS contribution to your pension(s) can't exceed your GROSS salary. Include your contributions to employer's pension scheme but not the employer's contribution.

coyrls

zagfles wrote: »

The OP seems very confused about carry forwards, when the AA is simply not an issue if his pension inputs have only been about £6k per year in recent years and he's only looking at putting a little over £40k in this year.

He seems to be wanting to put £41k gross on top of £6k gross this tax year, that would be over the tax relief limit if his earnings are £41k gross. But £41k seems to be net earnings so he might be OK.

OP your GROSS contribution to your pension(s) can't exceed your GROSS salary. Include your contributions to employer's pension scheme but not the employer's contribution.

Sorry I re-read the post and you're right, I didn't pick up that the £41K would be in addition to the £6K but, as you say, he also talks about the 41K being net. However, back to the original question, a platfom typically won't know your income and his platform seems to be saying to him that he can only get tax relief on 40K, which is wrong. As you say with carry forward, the Annual Allowance won't apply and the limit will be his relevant earnings (which typically a platform won't know).

jamesd

eyeonretirement wrote: »

Thought if I earned 41,000 (net) this year and had contributed 6000 already I could still contribute 41,000 gross (32800 net) if I had unused carry forward contribution from the previous 3 years ( eg if I have only being contributing 6000 per year previously. So I thought I could contribute the 32800 as a lump sum at the end of the year

You can't. There are two limits:

1. earned income in the tax year of your contributions. With an earned income under this rule of £41,000 the maximum gross allowed with tax relief is £41,000. Carry forward of income from past tax years is not allowed, though many years ago it was. Everyone gets at least a £3,600 allowance until they are 75 if they don't have an earned income above that.

2. annual allowance. This is £40,000 a year but unused allowance from the past three years can be used it that's not enough, provided you were in any sort of pension scheme other than the state pension for those years.

Added later: you get the lower of those two limits.

eyeonretirement

I am just using unused annual allowance when I am making my assumptions ( 6000 a year leaves a lot), my GROSS earnings are around 45000 but after salary sacrifice and employers contributions (6000) my NET earnings are 41000.

So, with carry forward I can contribute up to 45000 gross ? If I have contributed 6000 net ( 7200 gross) then I can contribute a further 45000-7200 = 37800. Is that correct ?

Thanks for everyones input

zagfles

eyeonretirement wrote: »

I am just using unused annual allowance when I am making my assumptions ( 6000 a year leaves a lot), my GROSS earnings are around 45000 but after salary sacrifice and employers contributions (6000) my NET earnings are 41000.

So, with carry forward I can contribute up to 45000 gross ? If I have contributed 6000 net ( 7200 gross) then I can contribute a further 45000-7200 = 37800. Is that correct ?

Thanks for everyones input

This is getting confusing.

Firstly if the £6k is employer's contributions & salary sacrifice, then it doesn't get grossed up. £6k is £6k into your pension. You've already had tax relief through not paying tax on it.

Secondly your gross earnings are your earnings AFTER sal sac. You've sacrificed that salary. By "net" people usually mean after tax & NI, although it can be used in the way you describe. In this context take "gross" as meaning after sal sac, but before tax and NI are taken off.

But anyway - the relevant figure you need is your taxable income, ie what's on your P60, or "taxable to date" on your payslip. It sounds like that's £41k.

In which case the max contribution you could make this year to a SIPP is £41k gross, or £32.8k net. You put £32.8k in and the SIPP will claim tax relief of £8.2k.

For the purposes of the annual allowance your pension input would be £47k, but you have plenty of allowance available to carry forwards by the looks of it so it's OK as a one off.

For the purposes of the "100% of earnings" limit - employer contributions don't count (all sal sac contributions are technically employer contributions - you sacrifice the salary and the employer pays into the pension). So your limit is your taxable earnings - ie £41k by the sounds of it.