Carry forward and salary cap

TSCati

I'd be grateful for some advice on the carry forward rule. I'm trying to work out how much I can put in my SIPP before 4 April. My position is:

Salary: £80k
Amount paid into company pension (Employer's contribution) this tax year: £30k
Amount paid into company pension over the last three years : £30k

I think my maximum carry over is therefore £120k - £30k = £90k

What is the maximum that I can put into a SIPP this year? Is it:

1. £80k, i.e. my salary for this tax year; or
2. £90k - £30k = £60k, i.e. the carry over less the amount paid into my pension this tax year.

I've read a factsheet produced by HL which states: "You must earn at least the amount you wish to contribute in total this tax year (unless your employer is making the contribution)". I read this as meaning that 1. above it correct as the £30k paid into my pension this year was made by my employer.

Mr.Saver

Are you talking about tax relief or annual allowance? Those are two completely separated things.

You cannot carry forward tax relief, you can only carry forward annual allowance which is 40k per year. In another word, you will not get any tax relief on amount above £80k (your annual income) if you pay more than that into your pension in this tax year.

You can carry forward the annual allowance, which means you don't need to pay tax for paying into your pension as long as you stay within the annual allowance.

See: https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief and https://www.gov.uk/tax-on-your-private-pension/annual-allowance

Triumph13

You can pay the lower of:

1. Earned income for this tax year - £80k; or
2. AA plus carry forward less contributions already made this year.

The employers' contributions count for the second test but not for the first so it's the lower of £80k and (£40k AA + £120 C/Fwd - £30k ER's contributions) = £110k. So you could contribute £80k.

zagfles

If £80k is your taxable income after any pension contributions/salary sacrifice you made to your employers scheme, then it's £80k. It's not your salary that matters, it's your taxable earned income.

TSCati

Thank you for your comments Mr.Saver.

Mr.Saver wrote: »

Are you talking about tax relief or annual allowance? Those are two completely separated things.

You cannot carry forward tax relief, you can only carry forward annual allowance which is 40k per year. In another word, you will not get any tax relief on amount above £80k (your annual income) if you pay more than that into your pension in this tax year.

I'm not sure that is the case. The pensionsadvisoryservice.org website states: "Carry forward allows you to make pension contributions in excess of the annual allowance and receive tax relief".

Anyone else have a view on this?

TSCati

Triumph13 wrote: »

The employers' contributions count for the second test but not for the first

Many thanks Triumph13, I thought that was the case.

TSCati

zagfles wrote: »

...it's your taxable earned income.

Many thanks for the clarification zagfles.

Mr.Saver

TSCati wrote: »

Thank you for your comments Mr.Saver.




I'm not sure that is the case. The pensionsadvisoryservice.org website states: "Carry forward allows you to make pension contributions in excess of the annual allowance and receive tax relief".

Anyone else have a view on this?

You should read it this way:
Case 1, Annual Allowance is below income in this tax year.
|

---

| Income in this tax year
|

---

|

---

Annual Allowance
|

---

| Receive tax relief on pension contribution

---

|

---

Pay tax on pension contribution

---

|

---

| Tax relief & pay tax cancel out each other


Case 2, Annual Allowance is above income in this tax year.
|

---

|

---

Income in this tax year
|

---

| Annual Allowance
|

---

|

---

Receive tax relief on pension contribution

---

---

|

---

Pay tax on pension contribution

---

|

---

| No tax relief & don't pay tax

So if your income is above AA, but below the AA + carry forward, then you can receive more tax relief by using the carry forward.

jamesd

If your 80k salary is including the 30k employers contribution the answer is that an additional 50k gross is permitted, including the 25% added in a relief at source scheme to give basic rate relief. Which means an extra net employee contribution of 50k / 1.25 = 40k net you can pay in.

If the 80k doesn't include the employer contribution then the full 80k gross is available so 80k / 1.25 = 64k net.

You are also going to be entitled to some higher rate relief via a payment from HMRC that you must ask them for.

You are entitled to the 25% relief at source added by the pension to the part of your contribution that's within your income tax personal allowance. Even though you don't pay income tax on it.

At a minimum the annual allowance available to use is 40k x 4 - 30k - 30k = 100k gross. And your pay is less so it's the limit. If pay wasn't limiting, there may be a bit more allowance from 2015-16 available but no need for you to go into that.

TSCati

jamesd wrote: »

At a minimum the annual allowance available to use is 40k x 4 - 30k - 30k = 100k gross. And your pay is less so it's the limit. If pay wasn't limiting, there may be a bit more allowance from 2015-16 available but no need for you to go into that.

Great summary jamesd, thank you.