Last 3 years

jscol

It seems likely that my wife and I are going to put money into a private pension for her as a means of saving. We both have DB pensions that we imagine will provide most of our income in retirement. We want to use an additional pension for her so that we can get the tax relief.
I think that we can carry forward tax relief for the last 3 years for a pension? Does this mean that we could presently make upto 3 years of pension contributions upto the equivalent of her annual salary and effectively claim 3 years of tax back to boost her contributions?

kidmugsy

jscol wrote: »

Does this mean that we could presently make upto 3 years of pension contributions upto the equivalent of her annual salary and effectively claim 3 years of tax back to boost her contributions?

No. It means that if her contributions this year (including the added value in her DB pension) were to exceed £40k (gross), she could carry forward unused allowance from the previous three years. But she could contribute £40k (gross) only if her earnings - not her income - equalled or exceeded £40k this year.

jscol

I think I understand. Many thanks.
She only works part time so earns less than 40k. So basically we can put the equivalent of her annual earnings into pensions this year. Some of her pension allowance will goto her DB pension. The remainder can be put into a personal pension. The 3 year rule will not affect her because the limiting factor is her salary, not tax relief. Is this sounding correct?

Asghar

jscol wrote: »

I think I understand. Many thanks.
She only works part time so earns less than 40k. So basically we can put the equivalent of her annual earnings into pensions this year. Some of her pension allowance will goto her DB pension. The remainder can be put into a personal pension. The 3 year rule will not affect her because the limiting factor is her salary, not tax relief. Is this sounding correct?

Yes, it's her salary. You can contribute 100% of your earnings, up to a maximum of £40K gross including the tax relief each year. Anything £40K or less will always count towards this years contributions.

If you want to carry forward tax relief from previous years that you have not used, like say you earned £20K last year and did not pay anything into a pension. Then you would have to earn £60K this year, so that £40K will count towards this year and £20K will go towards last year's unused contribution.

That's in simple terms if you take the DB pension out of the equation.