Pension Contribution Confusion.

Daveinlincoln

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.

coyrls

You are always limited by your relevant earnings, i.e. you can't contribute more than you earn in any tax year.

TcpnT

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.

Dazed_and_confused

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

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).

Triumph13

Dazed_and_confused wrote: »

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.

bob_a_builder

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

bob_a_builder wrote: »

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

bob_a_builder

OK - thanks
And do I actually pay 41K or 32K to allow for the 20% Tax relief which will get added on

Spreadsheetman

bob_a_builder wrote: »

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

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