Question re pension contributions carry forward

BoxerfanUK

Thanks D&C so I clearly got that wrong. So if 20% goes into her pension how does the other 20% come back to her? Or have I got that wrong too!

I'm so dazed and confused :-)

All we really want to know is can we utilise that £34,092.71 of unused allowance? What do we pay in, what benefit do we get out, and how do we do it?

Dazed_and_confused

A contribution for 2018:19 would be one of three ways,

Adjustment to 2018:19 tax code (getting a bit late for this now)

Annual tax calculation and lump sum refund from HMRC after the tax year ends (if not filing a Self Assessment return)

Self Assessment return

Remember pension tax relief is just part of her overall tax position for the year, you do not get an "extra 20%" pension tax relief. The contribution just increases the amount of basic rate tax payable. Which can in turn reduce the amount of higher rate tax payable.

I'm no expert on what she can pay, I know more about what should happen once the payment is made. So will let others help with what can be paid (and qualify for tax relief).

Triumph13

She pays £27,274 into her pension. HMRC add £6,818.50 bringing it up to £34,092.50. No need to tell HMRC you are using carry forward relief, just keep a note of the details in case they ever challenge her.
Then she contacts HMRC and tells them what she's done and that she'd like a tax refund, or she just includes it in her tax return if she is already doing SA.
When I did this a few years ago it took one quick phone call and I had a cheque from HMRC in a couple of weeks.

zagfles

BoxerfanUK wrote: »

Hi all,

My OH currently earns around 130K and for the past couple of years has paid the max 40K (including employer cont') via salary sacrifice. We are now trying to put away as much as we can while we still can.

However, in tax year 2015/16 she only paid in with her employer contribution a total of £5064.00, meaning (I presume) she has £34,935 of unused allowance for that year.

You presume wrong. Working out the carry forwards from that particular tax year, 2015/16 is complicated because in that year, the govt made changes to align pension input periods to tax years, which means that tax year was treated as 2 "mini" tax years. See https://www.gov.uk/government/publications/pensions-technical-note-transitional-provisions-for-aligning-pension-input-periods/pensions-technical-note-transitional-provisions-for-aligning-pension-input-periods
and note that it doesn't just affect those earning over £150k, it affects everyone.

However, it generally means there is more allowance available. If you ask the scheme for pension input amounts from that year they should provide 2 figures for the two mini tax years.

This C/F will be lost as from the new tax year, so I was wondering is there any benefit to her paying this amount as a lump sum into her pension from savings, bearing in mind this 'savings' money has already been earned and tax paid on it.

How would this work? Would she pay in an amount, with the tax man then contributing 40% to make it up to £34,935?

Into her work pension or a private one?

Or have I got this all wrong and there's no real benefit to it.

Thanks in anticipation.

There is likely benefit to it but you'll need to understand the above to work out what the benefit is...

BoxerfanUK

Triumph13 wrote: »

She pays £27,274 into her pension. HMRC add £6,818.50 bringing it up to £34,092.50. No need to tell HMRC you are using carry forward relief, just keep a note of the details in case they ever challenge her.
Then she contacts HMRC and tells them what she's done and that she'd like a tax refund, or she just includes it in her tax return if she is already doing SA.
When I did this a few years ago it took one quick phone call and I had a cheque from HMRC in a couple of weeks.

Thank you Triumph13, really appreciate that and D&C thank you.

BoxerfanUK

zagfles wrote: »

You presume wrong. Working out the carry forwards from that particular tax year, 2015/16 is complicated because in that year, the govt made changes to align pension input periods to tax years, which means that tax year was treated as 2 "mini" tax years. See https://www.gov.uk/government/publications/pensions-technical-note-transitional-provisions-for-aligning-pension-input-periods/pensions-technical-note-transitional-provisions-for-aligning-pension-input-periods
and note that it doesn't just affect those earning over £150k, it affects everyone.

However, it generally means there is more allowance available. If you ask the scheme for pension input amounts from that year they should provide 2 figures for the two mini tax years. Into her work pension or a private one? There is likely benefit to it but you'll need to understand the above to work out what the benefit is...

Hi Zagfles,

She doesn't have a private pension just a works DC one.

For 2015/16 for the two different periods she paid in this;

6/4/15 - 8/7/15 £1,160.25 including employer cont'

9/7/15 - 5/4/16 £3,904.04 including employer cont'

zagfles

BoxerfanUK wrote: »

Hi Zagfles,

She doesn't have a private pension just a works DC one.

So this lump sum she's thinking of paying in is going into the works pension, not a private one? It's likely that the works pension is not a RAS (relief at source) scheme, in which case all the stuff above about the scheme claiming 20% from HMRC etc are wrong. They were assuming she was paying into a RAS scheme. Some works pensions are RAS schemes but most aren't.

You'll have to ask the scheme how they handle lump sum payments, and if they even allow them. I think the most likely case is that the amount she pays is a pure gross contribution and she'll need to claim the full relief on her tax return. But the scheme should be able to tell you.

For 2015/16 for the two different periods she paid in this;

6/4/15 - 8/7/15 £1,160.25 including employer cont'

9/7/15 - 5/4/16 £3,904.04 including employer cont'

Is that a statement from the scheme, or from her records (payslips etc)? If the latter then you need to know what the pension input period for the scheme was - this didn't used to be aligned with the tax year (unless the scheme chose to).

For instance, if the PIP was 1 May to 30 April, then all her contributions from 1 May 2014 to 8 July 2015 would count in the first "mini tax year" ending 8/7/2015.

However, assuming this is less than £40k, then it can all be ignored and carry forwards from the 2015/16 tax year is £40k minus PIA in the second mini tax year, ie £36095.96

HL have a carry forwards calculator if you want to confirm https://www.hl.co.uk/pensions/contributions/carry-forward-rule/annual-allowance-calculator

zagfles

PS it's worth reading the HL factsheet linked from the calculator above, as she's pretty close to the AA taper. If she has any other income (investments etc) she might be affected

BoxerfanUK

zagfles wrote: »

So this lump sum she's thinking of paying in is going into the works pension, not a private one? It's likely that the works pension is not a RAS (relief at source) scheme, in which case all the stuff above about the scheme claiming 20% from HMRC etc are wrong. They were assuming she was paying into a RAS scheme. Some works pensions are RAS schemes but most aren't.

You'll have to ask the scheme how they handle lump sum payments, and if they even allow them. I think the most likely case is that the amount she pays is a pure gross contribution and she'll need to claim the full relief on her tax return. But the scheme should be able to tell you. Is that a statement from the scheme, or from her records (payslips etc)? If the latter then you need to know what the pension input period for the scheme was - this didn't used to be aligned with the tax year (unless the scheme chose to).

For instance, if the PIP was 1 May to 30 April, then all her contributions from 1 May 2014 to 8 July 2015 would count in the first "mini tax year" ending 8/7/2015.

However, assuming this is less than £40k, then it can all be ignored and carry forwards from the 2015/16 tax year is £40k minus PIA in the second mini tax year, ie £36095.96

HL have a carry forwards calculator if you want to confirm https://www.hl.co.uk/pensions/contributions/carry-forward-rule/annual-allowance-calculator

Hi Zagfles, sorry, I just assumed that in my OP I mentioned that she was paying in via salary sacrifice and it included employer contributions.

Perhaps I should have made it clearer that she is in a DC employer scheme and not private i.e. sip. Sorry if I've wasted anybodys timein the replies. I will look into what you have said and get her to call her pension provider.

BoxerfanUK

zagfles wrote: »

PS it's worth reading the HL factsheet linked from the calculator above, as she's pretty close to the AA taper. If she has any other income (investments etc) she might be affected

Thanks zagfles, at the moment although her threshold income is above 110K her adjusted income is under the 150K.