Maximum tax free contribution?

Chippy99

Hi - I wonder if anyone can answer this please?

I understand the maximum annual allowance is £40k, but that you can carry forward unused allowance from previous 3 years.

However, last financial year, I didn't earn anything, so didn't pay any income tax either. Can I still carry forward last year's £40k and put £80k in tax free this year?

ColdIron

Assuming that you were a member of a pension scheme last year there are two limits to be aware of. You have an annual allowance of £40,000, unused annual allowance can be carried forward. You also have an annual limit of 100% of earnings, this cannot be carried forward. If you earn £30,000 this year then that's all you can contribute and cannot use carry forward. If you earn £80,000 this year then yes you can

Chippy99

Thanks. The earnings limit is not applicable.

And I have a number of pensions but did not contribute to any of them last year. (There seemed no point, since I had no income and therefore no tax relief to claim.)

So to be clear, can I still carry £40,000 of unused allowance over from last year, even though I earned no money and paid no tax last year?

Dazed_and_confused

Could you not have at least done the old £2,880 becomes £3,600 trick so popular on here!

kidmugsy

Chippy99 wrote: »

last financial year, I didn't earn anything, so didn't pay any income tax either. Can I still carry forward last year's £40k and put £80k in tax free this year?

Yes you can carry £40k forward. You can make a gross contribution of £80k this tax year as long as your earnings equal or exceed £80k.

N.B. that's EARNINGS, not income.

Triumph13

I must admit to being curious about your megabucks - zero - megabucks earning pattern. Do tell.

xylophone

You are aware of the difference (for pension tax relief) between income and relevant earnings?

ColdIron

Chippy99 wrote: »

Thanks. The earnings limit is not applicable.

Why is this?

So to be clear, can I still carry £40,000 of unused allowance over from last year, even though I earned no money and paid no tax last year?

Nothing to do with last year's income or what tax you paid last year. Everything to do with your relevant earnings this year and the earnings limit.

ColdIron wrote: »

You also have an annual limit of 100% of earnings, this cannot be carried forward. If you earn £30,000 this year then that's all you can contribute and cannot use carry forward. If you earn £80,000 this year then yes you can

See:

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/carry-forward

To use carry forward, you must make the maximum allowable contribution in the current tax year (£40,000 in 2018-19) and can then use unused annual allowances from the three previous tax years, starting with the tax year three years ago.

You can’t receive tax relief on contributions in excess of your earnings in a tax year and you only receive higher rate tax relief to the extent that you have paid it.

Chippy99

Triumph13 wrote: »

I must admit to being curious about your megabucks - zero - megabucks earning pattern. Do tell.

Simple - I packed my job in and took 18 months off, unpaid.

Chippy99

ColdIron wrote: »

Why is this?

Because the tax free allowance plus all possible carry overs, is less than my annual earnings.

Chippy99

Sorry to resurrect an old thread, but please can anyone tell me what is the actual *mechanism* for carrying forward unused allowances from previous years?

Do I actually have to *do* anything - like tell the taxman in some way? Are there any particular forms to fill in?

Or is it simply a matter of doing a tax return and using the appropriate figures?

My tax-free allowance this year is reduced to £10,000 based on my income, but I've worked out I can carry over circa £127,000 of unused allowance from previous years, and I want to take advantage of that.