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Pension Contribution Confusion.

Hi Chaps,just hoping to pick the brains of a few of the experts on here.

I read somewhere that I can use previous years contribution allowances (up to 3 years)if i haven't contributed anything in those years.

The confusion for me is I've been told i can only do this if I have used up all of this years allowance...Ok i get this.

The grey area is I've been told that i have to have contributed the full £40000 of this years allowance before I can use the previous years...but does it only apply if you have earned £40K...what about if you earned less? can i still use previous years?

For example this tax year i will earn £23k...i will contribute £23k to my pension.

Last year i contributed nothing...ditto the previous 2 years,in each year i earned £23k so can't i just pay in £23k for those previous years?

Hope I've explained myself well(I probably havent!)

Any clarification would be great chaps,thanks in advance.
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Comments

  • coyrls
    coyrls Posts: 2,506 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    You are always limited by your relevant earnings, i.e. you can't contribute more than you earn in any tax year.
  • TcpnT
    TcpnT Posts: 279 Forumite
    Eighth Anniversary 100 Posts Name Dropper
    I'm afraid you are out of luck here.

    You are correct that the annual allowance can be carried forward from the previous three years if unused or only partly used so there is the potential to contribute 120K this year if you have made no contributions in the last two years.

    However contributions in any tax year are limited to your earned income in that year. If you only earn 23K that is your maximum contribution for the year despite the previous years' allowances being unused. If you earned 120K this year you could contribute the full amount and make use of the previous unused allowance.
  • In what way do you hope to benefit (now or in the future) by deeming your £23k payment as using unused allowance carried forward from an earlier year rather than it using this year's income?

    And irrespective of that it's an impressive (if unusual in my experience) contribution rate!!
  • dunstonh
    dunstonh Posts: 119,453 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    The grey area is I've been told that i have to have contributed the full £40000 of this years allowance before I can use the previous years...but does it only apply if you have earned £40K...what about if you earned less? can i still use previous years?

    You must have used up this years allowance before you can use carry forward. To use up this years allowance, you must earn at least £40k a year.

    If you earn £23k then you cannot use carry forward. (exception being company directors by virtue of the way they fund the pension).
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Triumph13
    Triumph13 Posts: 1,948 Forumite
    Part of the Furniture 1,000 Posts Name Dropper I've been Money Tipped!
    And irrespective of that it's an impressive (if unusual in my experience) contribution rate!!
    It can be a very handy trick - as long as you are contributing it to a PP or SIPP rather than a traditional work 'net pay' pension where it would be incredibly wasteful. My DW is doing this and will even manage to get it back out tax free using PA during early retirement.
  • I want to do this trick too
    retiring next year
    current salary 53K
    normal pension payments 12k/year
    Max pension allowance 40k/year

    So I think I can make a payment of 41k

    40 - 12 = 28k - allowance left this year
    53 - 40 = 13k - usable carry forward from last year

    28 +13 = 41k


    Have I got that right ?
  • Linton
    Linton Posts: 18,119 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    I want to do this trick too
    retiring next year
    current salary 53K
    normal pension payments 12k/year
    Max pension allowance 40k/year

    So I think I can make a payment of 41k

    40 - 12 = 28k - allowance left this year
    53 - 40 = 13k - usable carry forward from last year

    28 +13 = 41k


    Have I got that right ?

    Not quite - your usable carry forward allowance from last year is £40K -£12K=£28K which added to this unused allowance makes £56K. However you are still restricted to an extra £41K because of the earned income requirement $53K-£12K=£41K
  • OK - thanks
    And do I actually pay 41K or 32K to allow for the 20% Tax relief which will get added on
  • OK - thanks
    And do I actually pay 41K or 32K to allow for the 20% Tax relief which will get added on

    You pay £32,800 contribution which becomes £41k after the tax relief.
  • bob_a_builder
    bob_a_builder Posts: 2,353 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Ok so in the end I went ahead and made an additional pension payment of 30K back in March 2018

    The pension company would have added on the 20% on entry

    Now I have written to the tax man claiming the other 20% as a HRT payer, but they say I'm only entitled to a £3150 refund, they have sent a P800 form which is supposed to explain this - but I'm afraid its not clear to me

    If I upload the relevant bits of the P800, would someone be prepared to have a look and try to explain it to me ?

    Thanks
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