Carry Forward - Confused

Theta101

My wife will be retiring from part time teaching 1st August 2017.
She will be taking the Teachers Pension from 1st August 2017.
She is 64 years old.
She has savings of £30K in cash/ISA and a recently opened SIPP.
She has put £6000 gross into the SIPP since August 2016.

We may have misinterpreted the Carry Forward rules.

Tax year: 16/17 earnings to date £4097: Gross contributions £6,978 (includes SIPP)
Tax year: 15/16 earnings £9805: Gross contributions £2,420
Tax year: 14/15 earnings £14527: Gross contributions £3,334
Tax year: 13/14 earnings £10936: Gross contributions £2,481

Questions are...
Has she paid too much into the SIPP (the £6000 gross)?
Does she have ANY carry forward available?

I originally worked it out thus:
Total Gross earnings £39,365
Total Gross cont's £15,214 (includes £6000 SIPP)
Carry forward £39,365 - £15,214 = £24,151 still available.

Help!

kidmugsy

She's not allowed to contribute more than her annual earnings (or, at least, any extra contribution wouldn't be tax-efficient). So in the remainder of 16/17 she needs to earn £6978 - £4097 = £2881.

bigadaj

The answer is no, if she won't earn enough to cover this years contribution then contact the sipp supplier and see if it can be unraveled.

The other question is how have you calculated the contributions for the tps, this isn't what you contribute but based on the increase in value of the defined benefit scheme, is this what has been done?

jamesd

She has huge amounts of annual allowance carry forward available but she can't use it because her earned income is lower and you can't carry forward income from past years, just annual allowance.

The penalty is HMRC charging her for the extra tax relief that she wasn't eligible for but tell the SIPP provider first because they may be able to undo the contributions.

She needs to get her earnings to 6978 to cover what has been done so far, assuming that includes the TPS value increase.

It isn't yet a problem to have paid in 6000 so far because you can pay in before earning the money. Only becomes an issue if you've still paid in more than earnings after the tax year ends.

zagfles

bigadaj wrote: »

The other question is how have you calculated the contributions for the tps, this isn't what you contribute but based on the increase in value of the defined benefit scheme, is this what has been done?

That's for the annual allowance, which is clearly irrelevant here.

For the tax relief limit (ie £3600/100% of earnings), which is the limit that's relevant here, it is her contributions only that count. Not employer and not the increase in value of the DB scheme.

So if she earns £6k and contributes 5% to the tps, then the max she can put into a SIPP is £5700 gross, £4560 net.

Theta101

A big thank you to all responses, they've all helped us to understand the carry-forward rules better.
And the TPS "contributions" which only appear on the payslips as "Ers cumulative" not as contribution, my mistake.
We've calculated that the 'over' gross contributions are £1005 for the full year to April/17.
The £6000 SIPP gross contribution was actually 5 x £960 (5 x £1200 grossed up).
We'll be on the phone to Hargreaves tomorrow to see what can be done with the last £960 deposited, on 3rd Jan/17.

It's funny really, if another poster didn't ask about his carry-forward I would never of questioned my understanding of the rules, and was about to put lump sums of £10K into my wifes SIPP and £20K into mine!!!

You've all saved us alot of stress

Thanks.