Value of pension contribution towards AA

peterg1965

I am a HRT payer and member of a DC occupational pension scheme. I contribute £333/every 4 weeks into my DC pension via salary sacrifice (Smart Pay I think its called) and my employer adds a further £443/every 4 wks. So, that's £10088/year.


In terms of Annual Allowance it would be useful to know if my work pension takes up £10088 of AA annually or whether I should take into account a tax relief element from employer/employee as well?


I also pay £1200/month into my SIPP, I automatically get the £300 basic rate tax relief and claim the HRT relief via my tax code, so I believe that accounts for £21600 of AA - although only £18000 actually goes into the SIPP.


I also would like to work out how much AA carry forward I have available so I can be ready to top up my SIPP if the budget makes significant changes to AA next month.


Grateful for confirmation or pointers.

zagfles

peterg1965 wrote: »

I am a HRT payer and member of a DC occupational pension scheme. I contribute £333/every 4 weeks into my DC pension via salary sacrifice (Smart Pay I think its called) and my employer adds a further £443/every 4 wks. So, that's £10088/year.


In terms of Annual Allowance it would be useful to know if my work pension takes up £10088 of AA annually or whether I should take into account a tax relief element from employer/employee as well?

You already have full tax relief on those contributions because they're taken before tax is applied. So the £10088 is the gross total.

I also pay £1200/month into my SIPP, I automatically get the £300 basic rate tax relief and claim the HRT relief via my tax code, so I believe that accounts for £21600 of AA - although only £18000 actually goes into the SIPP.

Right, so you add £18000, making £28088. You don't add the higher rate reclaim because as you say that goes to you not the SIPP, it's a refund of tax.

I also would like to work out how much AA carry forward I have available so I can be ready to top up my SIPP if the budget makes significant changes to AA next month.


Grateful for confirmation or pointers.

Try the HL calculator: http://www.hl.co.uk/pensions/interactive-calculators/carry-forward-annual-allowance-calculator

Bear in mind the tax relief limit too - you can't get tax relief on more than 100% of your "relevant earnings" (basically employment income) in a tax year. This is a limit which is completely separate to the annual allowance, and there is no carry forwards, and employer contributions don't count.

For instance, if your taxable pay (ie after your DC pension deductions) is £50,000, you can't put more than £50,000 gross into your SIPP (ie £40k net). Well, technically you can but you wouldn't get tax relief so it's usually a bad idea.

peterg1965

Thanks Zagfles, that's useful and added a lot of clarity to things I should really have known. I've used that HL calculator and with rollover of AA I can add £78500 this tax year up to April 18. Strangely enough that's almost precisely my 'relevant earnings' this year (earning from employment) but I do have another significant amount from a DB pension in payment, which I guess will not be 'relevant earnings' and cannot be taken into account.


I am unlikely to be able to make up the full amount of £78500 this tax year, but if I did, I guess I wouldn'y get full HRT relief on all of that would I?


ETA - thinking about this of course, if I have already taken up £28088 this tax year, that leaves c£50k, which means the maximum I could put in would be an extra £40k which would be topped up to £50k by Basic rate relief, I would then claim back a further £10k via self assessment, so it would actually cost £30k in extra cash to use up all of my rolled up AA.

zagfles

peterg1965 wrote: »

Thanks Zagfles, that's useful and added a lot of clarity to things I should really have known. I've used that HL calculator and with rollover of AA I can add £78500 this tax year up to April 18. Strangely enough that's almost precisely my 'relevant earnings' this year (earning from employment) but I do have another significant amount from a DB pension in payment, which I guess will not be 'relevant earnings' and cannot be taken into account.

Yes pensions are not relevant earnings.

I am unlikely to be able to make up the full amount of £78500 this tax year, but if I did, I guess I wouldn'y get full HRT relief on all of that would I?

No, you only get HRT relief on what you pay HRT on, ie taxable income over £45k.

ETA - thinking about this of course, if I have already taken up £28088 this tax year, that leaves c£50k, which means the maximum I could put in would be an extra £40k which would be topped up to £50k by Basic rate relief,

Yes

I would then claim back a further £10k via self assessment, so it would actually cost £30k in extra cash to use up all of my rolled up AA.

Assuming you're still a HRT payer, otherwise as above you might not get the full £10k HR relief.

Also if you got a tax free lump sum from the DB pension, watch out for HMRC recycling rules. See http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/