Tapered annual allowance

Mistermeaner

Hi

Due a couple of decent bonuses i will exceed both the 110k and 150k threshold / adjusted income measures and as such will be subject to a tapered annual allowance

I'm in the process of making lump sum contributions to my pension to i hope keep my gross taxable income below 100k and avoid the punitive allowance withdrawal

My question is that does my annual allowance get tapered for this tax year (the year i exceed the threshold/adjusted amounts) or is the taper applied to next year?

Also when applying for higher rate tax relief on lump sum payments made this tax year (using carry forward from 3 years ago) is the max tax relief set by tax paid in the carry forward year (3 years ago) or tax paid this year ?

Thanks

Dazed_and_confused

Tax relief is calculated by reference to your tax position in the year of contribution.

And will be established once you file your Self Assessment return for that year.

Mistermeaner

Dazed_and_confused wrote: »

Tax relief is calculated by reference to your tax position in the year of contribution.

And will be established once you file your Self Assessment return for that year.

Thanks ; that makes paying in a bit tricky as you won't know for definite your tax relief eligibility until after the point at which you can contribute (or choose not to contribute) to your pension ??? This could result in making payments into your pension without the benefit of getting tax relief and then effectively being double taxed when withdrawing

Or have i misunderstood?


Is annual.allowance done in the same way - Ie 18/19 allowance is based on threshold/adjusted income in 18/19 ?

Dazed_and_confused

This could result in making payments into your pension without the benefit of getting tax relief

Assuming your intention is to try and avoid making contributions which aren't eligible for tax relief I'm struggling to see quite how you won't get tax relief on the qualifying contributions you do make given your earned income is above £100k.

Depending on your exact circumstances the relief could be anything from 20% to 46% and some may even give you the effective 60%+ where withdrawal of Personal Allowance is concerned.

kuratowski

Yes, but you could have to pay back that relief through self-assessment if your annual allowance has been tapered.

OP, all you can really do is to try and estimate your total income for the year as closely as possible and accept if you get it a couple of K out then you'll have to pay some extra through SA.

Mistermeaner

Thanks guys really helpful

Only outstanding question for me is whether the annual allowance this year is tapered for earnings in this year - or will it be next year's allowance that tapered ?

kuratowski

It's in this year. But the tapering doesn't affect any carry forward you have available.

You might find this calculator helpful: https://www.tax.service.gov.uk/pension-annual-allowance-calculator

Mistermeaner

Last question

When determining the appropriate value of lump sum payments to ensure my pre tax income is below the 100k

Is the calc ;

1: p60 gross LESS ( lump sum paid by me )

Or

2: p60 gross LESS ( lump sum paid by me + tax relief at source)

Or:

3 p60 gross LESS ( lump sum paid by me + tax relief at source + high rate tax relief )


For context my p60 gross is looking like being 110k so I'm trying to figure if I need to put in:

1: 10k (which then gets topped up in addition) and I later reclaim high rate tax relief

2: 8k (which then gets tax relief at source making it up to 10k) and I later reclaim high rate tax relief

3: 6k (which gets tax relief at source plus high rate tax relief taking it to 10k

andy001

https://www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance

see if this helps...