Pension Contribution Confusion.

bob_a_builder

Forgot to add links to P800

page 1
https://ibb.co/bOECuT

page 2
https://ibb.co/kN3NuT

Asghar

Daveinlincoln wrote: »

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?

It's not a grey area.
To qualify for tax relief you are allowed to contribute 100% of your earnings, up to a maximum of £40,000 in any tax year. You would invest £32k and the 20% tax relief would bring it up to £40k.
The first £40k is always used in the current years allowance.

If you wanted to make up last years £23k that you didn't contribute, then you would need to earn £63k this year. £40k for this tax year and £23k for the last one.
You would also need to have a pension scheme or plan open for the previous years that you could have contributed to but didn't.

Dazed_and_confused

bob_a_builder

I fear you have misunderstood how pension tax relief works.

You cannot claim "the other 20%" from HMRC.

Your gross pension contribution simply increases the amount of basic rate tax you can pay in the year, which in turn reduces the amount of higher rate tax you might be liable to.

Looking at the P800 you have linked to it appears that your gross contribution was £37,500 so therefore your basic rate tax band for 2017:18 is increased from £33,500 to £71,000.

However you were only due to pay tax on £54,929 which is £21,429 above the standard basic rate band of £33,500.

You had already received tax relief on pension contributions of £2,585 through your tax code so the balance relief was still due was £18,844 so in very simple terms you would be due relief of £3768.80 (£18,844 x 20%).

However the second part of the P800 indicates you hadn't paid enough tax on your company benefits so a bit of adjustment for that and the tax owed from a prior year has reduced the tax overpaid down to the £3.5k mark.

If you need a more detailed explanation you would have to provide a breakdown of your final tax code for 2017:18 along with your P60 for that year.

But basically you weren't paying enough 40% tax to get higher rate tax relief on the full £37,500 pension contribution.

bob_a_builder

I fear you have misunderstood how pension tax relief works

Almost certainly !
Thanks for the clarification

gf1966

Do the carry-forward rules work differently if the contributions are made by your employer?