Topping up pension using HMRC 'carry forward' pension allowance

calajayne

I am aged 46 and a higher rate tax payer.
I pay £383 per month to my pension via salary sacrifice.
My employer contributes £383 per month too.
A total of £9192 pa goes into my pension.
I am looking to top up my pension over the next three years with one-off contributions.
I know the maximum annual pension contribution is £40k which includes employer contributions.

I have a question which i'd be grateful for some advice on, please.
1) I understand that HMRC have a 'carry forward' allowance for unused pension allowance. Is this something you have to claim via a tax return or if I overpay this year will the carry forward allowance automatically be calculated (for instance, if I paid in £50k in total in 2017/18, would HMRC automatically calculate that I had £10k of unused allowance from 2016/17).

Thank you in advance

coyrls

calajayne wrote: »

I am aged 46 and a higher rate tax payer.
I pay £383 per month to my pension via salary sacrifice.
My employer contributes £383 per month too.
A total of £9192 pa goes into my pension.
I am looking to top up my pension over the next three years with one-off contributions.
I know the maximum annual pension contribution is £40k which includes employer contributions.

I have a question which i'd be grateful for some advice on, please.
1) I understand that HMRC have a 'carry forward' allowance for unused pension allowance. Is this something you have to claim via a tax return or if I overpay this year will the carry forward allowance automatically be calculated (for instance, if I paid in £50k in total in 2017/18, would HMRC automatically calculate that I had £10k of unused allowance from 2016/17).

Thank you in advance

The maximum contribution in any one year is the lower of your relevant earnings or £40K.

You don’t need to do anything special on your tax return, just declare your contributions if they are not contributions to your employer’s scheme. Keep your own calculations to demonstrate that you are within the limits, just in case HMRC contact you (they never have with me).

calajayne

Thank you, I don't currently complete an annual tax return so I was concerned that I might have to start submitting one in order for HMRC to calculate any carry forward allowance.

Paul_Herring

coyrls wrote: »

The maximum contribution in any one year is the lower of your relevant earnings or £40K..

Bear in mind that if you're adding the carried forward amounts, the maximum is still the lower of your earnings *this* tax year or the total from that sum.

i.e. if you're working it out simplistically as allowance being 3*(40,000-9192)+40000 = £132,424, if your earnings this tax year are less than that, then your earnings are the upper limit of what you can contribute.

jamesd

calajayne wrote: »

I am aged 46 and a higher rate tax payer.
I pay £383 per month to my pension via salary sacrifice.
My employer contributes £383 per month too.
A total of £9192 pa goes into my pension.
I am looking to top up my pension over the next three years with one-off contributions.

Why are you planning to use one-off contributions? Surely it'd be far better just to increase your salary sacrifice level so you save NI as well as income tax?

My employer had a normal cap of 50% of pay for sacrifice but was willing to let me go way over that, all the way to minimum wage, after checking that it wouldn't leave me short of money.

When doing salary sacrifice, if you're not down to minimum wage for the whole year, you can save more NI by going down to minimum wage for as many months as possible, then just the sacrifice needed to get the employer match for the rest of the year. This helps because NI is calculated for each pay period, not over the whole year. So if you go down to minimum wage you will maximise the amount of the sacrifice that is saving you the basic rate range 12% NI instead of the higher rate range 2%.

calajayne

Hi James

Thanks, yes I am planning on increasing my salary sacrifice each month to get to the total amount I want to put in across the year, rather than making a one-off contribution from my income. I didn't explain that in my question, sorry!

Thanks for the advice, it makes sense.

zagfles

coyrls wrote: »

The maximum contribution in any one year is the lower of your relevant earnings or £40K.

ARRRGGHH!! Wrong - OP see https://forums.moneysavingexpert.com/discussion/comment/72827434#Comment_72827434

coyrls

zagfles wrote: »

ARRRGGHH!! Wrong - OP see https://forums.moneysavingexpert.com/discussion/comment/72827434#Comment_72827434

Sorry, yes you're right. I was trying to correct the OP when he said:

I know the maximum annual pension contribution is £40k which includes employer contributions

by pointing out that your maximum annual pension contribution is limited to your relevant earnings but added to the confusion by also mentioning the £40k limit in that context.

Joey_Soap

coyrls wrote: »

The maximum contribution in any one year is the lower of your relevant earnings or £40K.

You don’t need to do anything special on your tax return, just declare your contributions if they are not contributions to your employer’s scheme. Keep your own calculations to demonstrate that you are within the limits, just in case HMRC contact you (they never have with me).

Spot on. That is exactly my experience too.