Mixture of Contribution Types - Limits

wary

Easy clarification re annual contribution limits please …

Assuming no carry forward is available, I believe that if making personal contributions, one is constrained by the lower of their gross annual salary and £40K. However, if made as company contributions, it is simply £40K regardless of their gross salary.

For someone who receives a mixture of the two, presumably the gross salary constraint only applies to the personal contributions with the £40K constraint applying to the two combined?

Thanks

HappyHarry

wary wrote: »

Easy clarification re annual contribution limits please …

Assuming no carry forward is available, I believe that if making personal contributions, one is constrained by the lower of their gross annual salary and £40K. However, if made as company contributions, it is simply £40K regardless of their gross salary.

For someone who receives a mixture of the two, presumably the gross salary constraint only applies to the personal contributions with the £40K constraint applying to the two combined?

Thanks

Yes, you are spot on.

There are two limits to be aware of.

1. The annual allowance of £40,000. Without using carry forward, contributions to a pension in your name can not exceed this limit. If they do, you will be liable to tax on the excess.

2. Your earnings. You can claim tax relief on your own pension contributions up to your earnings. If you make personal contributions in excess of your earnings, you will need to repay any tax relief claimed.

As an example, suppose you earned £25,000 pa, your company contributed £10,000 to a pension for you, and you contributed £20,000 (gross) yourself.

In this example everything is above board, and no rules or limits have been exceeded. The total contribution is less than £40,000. Your contribution, on which tax relief is claimed, is less than your earnings.

If your company now contributed another £10,000 to your pension in the same year, then the total contributions would exceed £40,000 and you would have to pay income tax on the £5,000 excess.

Instead, if you contributed another £10,000 (gross), then your own contributions would exceed your £25,000 earnings, end you would
have to pay income tax on the £5,000 excess.