Carry Forward Query

Vanadium3360

I am baffled by the pension carry forward system.

I have paid the following in to a DC pension (using salary sacrifice) and now wish to pay a lump sum in before I retire at the end of the year.

I have entered these values (actual values from P60s and pension statements) into the HMRC carry forward calculator and this gives an unused annual allowance of 57593 pounds. I get a similar value with a Hargreaves Lansdown carry forward calculator.

Tax Year - P60 Earnings - Pension Contributions - Annual Allowance Left

13/14 34765 8262 26503
14/15 33697 9858 23839
15/15 7456 4499 2957
15/16 22367 13496 8870
16/17 22417 25719 -3302
17/18 18258 (estimated) 23192 (estimated) -4934
Apologies for lack of table

Is this value (57593) correct ?

If so, what is the amount I can contribute from an ISA to achieve the maximum unused allowance ?

I think it is 57593 less next years overpayment of say 5000 to give 52k
So I contribute 41.6k which increases to 52k

Please identify where my plan goes awry.

Dazed_and_confused

Isn't the fact that you only have income of £18,258 a problem?

And where does next year's £5000 come from?

bigadaj

Your fundamental problem is that you can't contribute more than you earn in any one year.

So carry forward only comes into play if you earn more than £40k, and have contributed less than this in previous years.

So your last two years contributions have exceeded earnings which means you may have reclaimed more tax than you are allowed.

zagfles

Your "annual allowance left" column is completely wrong. Why are you subtracting your pension contributions from your P60 earnings? Your earnings aren't relevant for the annual allowance.

The HL and HMRC annual allowance calculators should give you the right answer, though I reckon you'd have about £70k carry forwards into this year, did you enter the numbers right?

Don't confuse the annual allowance with the completely separate tax relief limit on personal contributions (100% of earnings/£3600). Company contributons (and sal sac conts are company contributions) don't count for this.

zagfles

bigadaj wrote: »

Your fundamental problem is that you can't contribute more than you earn in any one year.

So carry forward only comes into play if you earn more than £40k, and have contributed less than this in previous years.

So your last two years contributions have exceeded earnings which means you may have reclaimed more tax than you are allowed.

No he hasn't. The sal sac contributions are company contributions, so are irrelavent for the "100% of earnings/3600"tax relief limit.

bigadaj

zagfles wrote: »

No he hasn't. The sal sac contributions are company contributions, so are irrelavent for the "100% of earnings/3600"tax relief limit.

Fair enough, my mistake.

But he's still limited by total earnings anyway.

zagfles

bigadaj wrote: »

Fair enough, my mistake.

But he's still limited by total earnings anyway.

Yes, I think that's where he's confused. He's not limited by the annual allowance, he's limited by the 100% of earnings tax relief limit.

OP - you can't make personal contributions (gross) of greater than your "relevant earnings" - basically employment income (well technically you can, but you don't get tax relief - so it's usually a bad idea). This limit can't be carried forwards.

So if you have £18258 left after your sal sac, you could put £18258 gross into a pension (ie £14606 net if a to "relief at source" scheme eg a SIPP or personal pension).

Vanadium3360

Thanks for the replies

So basically I have paid too much (8k) into a pension and now have tax to pay and cannot pay a lump sum in as I have no carry forward allowance.

What a clear easy to understand pension system !

zagfles

Vanadium3360 wrote: »

Thanks for the replies

So basically I have paid too much (8k) into a pension and now have tax to pay and cannot pay a lump sum in as I have no carry forward allowance.

What a clear easy to understand pension system !

No - you've completely misunderstood. And yes it is complicated!

For a start, the annual allowance is not an issue for you, you have loads of carry forwards available. Forget about the annual allowance, it's not an issue. Not yet anyway, it might be in future years.

I presume from your OP your total earnings this year are around £41k and you want to sal sac about £23k of it leaving about £18k taxable (P60) earnings? There is no problem doing that, and you can even pay the £18k (gross) into a pension if you want. You could sal sac all the way down to minimum wage, and pay the rest into a SIPP, personal pension, or other scheme that operates RAS (relief at source), since this is the only way you can get tax relief if your earnings go below the personal allowance.

Note that in a RAS scheme you pay 80% of the gross amount and the pension company claims 20% tax relief from HMRC.

Vanadium3360

Ok

I have forgotten about the annual allowance and have oodles of carry forward left to use.

If I populate the HL calculator

(easier than HMRC one as all figures entered on one page) with the 4 tax years pension contributions 23192, 25719, 13496, 4499, 9858 and 8262 this gives the gross amount I can contribute as 87735.

So that means I contribute 70k which is topped up to 87.7k ?

Have I got it ?

zagfles

Fraid not.

The annual allowance isn't your issue, so there's no point using any annual allowance calculator.

There is a completely separate limit, the tax relief limit, see my post #4 and #7. If you put more than your P60 earnings into a SIPP etc, you can't get tax relief. So if your P60 earnings are £18k, you can only put in £18k gross ie £14400 net into a SIPP. You can put more in but won't get tax relief, which nearly always makes it a bad idea as it may be taxed on the way out.