Tax Relief after finishing Work

Yorkifossil

I gave up work a few months ago, aged 63, and won't take anything from any pension until I'm 65.
I worked for part of the current tax year 2016-17, earning c. £10k.
Can I contribute an equivalent amount to my personal pension and get tax relief on it, even though I'm no longer earning? Does it make any difference whether I make the contribution during the current tax year or in the next one (2017-18), when I won't earn anything?

Linton

In any tax year you can contribute anything to your pension, subject to limits that probably wont concern you, as long as it is covered by earnings, ie from employment. So if you havent contributed to any pension in the 2016-2017 tax year and have paid no tax (ie the £10k is gross), you can put £8K into your personal pension and get £2K added by HMRC - the total musnt exceed your gross earnings.

Next year when you have no earnings you can still contribute up to £2880 net to your personal pension and receive a tax refund making it a total of £3600 even though you have paid no tax.

This "free" tax refund isnt as generous as it may appear as you will pay most of it back in tax if you are over the tax threshold when you draw your pension. The net benefit then comes from the 25% tax free lump sum - eg 20% of 25% of £3600 = £180.

jamesd

If you have unused income tax personal allowance and a personal pension you should consider drawing taxable money from pensions to benefit from that use it or lose it allowance.

badmemory

If you have a spouse you could consider handing over 10% of this years tax allowance to them. When claiming make it clear that it is not for the previous tax year.

Yorkifossil

Many thanks for the advice, but I'm still a little unclear on one aspect: I'm given to understand that contributions relevant to a specific tax year's earnings can be made up to 3 years after that tax year and still attract tax relief - can anyone confirm this, and how would I inform the pension company (or HMRC) which is the applicable tax year?
I'd ideally like to make the contribution for 2016-17 during year 2017-18.

bowlhead99

The 3-year carryforward thing is where you have a £40k limit of annual contribution allowance and if you don't use it (or much of it), then a couple of years later you could use that brought forward capacity to give you a larger max allowance for that year. So you could pay £10k, £10k £100k over three years, even though the max allowance was only supposed to be £40k for a year.

But that's only in relation to the fixed annual allowance being technically available. You can't actually USE all the allowance where you don't have enough earned income in a particular year to use it.

For example in the £10k,£10k,£100k scenario, you could only do 100 in the third year if you actually had 100k of gross salary that year. If you earned £15k in year 3 you could only pay £15k gross in that year, even if you have oodles of spare 'allowance' because of carry forward.

Think this is now covered by your other thread response, right?

Yorkifossil

It is indeed - I'd re-posted 'cos I hadn't spotted the original's appearance on the Forum! Does this qualify me as the old fool there's no fool like?
Many thanks for your help, Bowlhead; much appreciated.