Understanding carry forward

Dazed_and_confused

The UK.

Ok. If he'd been Scottish resident he would be on the cusp of paying intermediate rate tax (21%) and there may have been some additional tax relief to claim direct from HMRC.

But as UK resident he will only be paying 20% tax so there is nothing he can claim from HMRC, the basic rate tax relief the pension company will add is the maximum relief due.

jamesd

Your new understanding is correct.

Cottage_Economy wrote: »

I thought you could contribute up to your salary each year (to a maximum of £40,000 a year) and then use your unused allowances from previous years as soon as you have maxed out the current year.

That's correct. The 40k and carry forward restrictions relate to the annual allowance and salary is salary. With 24k salary it's covered by the up to 40k annual allowance and he can do all 24k without need to carry forward any annual allowance.

With both pay and annual allowance as limits it follows that to use 40k you need at least 40k pay.

It's common for people to be misled by descriptions that make it appear that it is the higher of pay or 40k that's the single limit when it's two independent limits that must both be followed. If someone does put in more than their pay they can ask the scheme to repay the excess as a refund of excess contributions lump sum.

swindiff

Dazed_and_confused wrote: »

Ok. If he'd been Scottish resident he would be on the cusp of paying intermediate rate tax (21%) and there may have been some additional tax relief to claim direct from HMRC.

But as UK resident he will only be paying 20% tax so there is nothing he can claim from HMRC, the basic rate tax relief the pension company will add is the maximum relief due.

Pretty sure Scotland is still "currently" in the UK

Dazed_and_confused

Not as far as tax on pension income and pension tax relief is concerned.

I probably should have said rest of the UK.

There are currently three different regimes,

Scotland
Wales
England/N.Ireland

Although Welsh tax rates mirror England/N.Ireland at the moment.

trampie

I am in the same boat Cottage Economy, I will look to retire in a few years time and am hoping to maximise my pension contributions in readiness for retirement, I heard that carry forward allows a person to make use of any annual allowance that they may not have used during the three previous tax years, this is my first post on this forum and am no expert on financial matters and have exactly the same questions as you.
I would also like to know if I can just put a lump sum into my pension [which would be more than I earn in a year, because of the 3 year carry forward rule] and do I notify anybody as to what I would be doing ?

NoMore

trampie wrote: »

I am in the same boat Cottage Economy, I will look to retire in a few years time and am hoping to maximise my pension contributions in readiness for retirement, I heard that carry forward allows a person to make use of any annual allowance that they may not have used during the three previous tax years, this is my first post on this forum and am no expert on financial matters and have exactly the same questions as you.
I would also like to know if I can just put a lump sum into my pension [which would be more than I earn in a year, because of the 3 year carry forward rule] and do I notify anybody as to what I would be doing ?

Read the thread, your questions have already be answered

trampie

NoMore wrote: »

Read the thread, your questions have already be answered

Hardly the great and the good on this site dont seem to know the answer [or understand the questions] to my or the thread starters questions.

zagfles

The thing that confuses people is that they look at the annual allowance rules and think that means they can put a large lump sum into their pension. And it's true that they probably could without exceeding the annual allowance.

BUT...there is another limit, a separate limit which is not part of and nothing to do the annual allowance. You can't get tax relief if you put more than 100% of your gross earnings into a pension. This usually makes it a bad idea, because you get no tax relief on the way in but may pay tax on the way out. Also some pension providers T&Cs say you can't do it, as it's extra admin for them. As this is nothing to do with the annual allowance, the carry forwards rules etc don't apply.

Dazed_and_confused

Part of the difficulties with some of the threads on here is that the information needed to answer the question is missing.

Often it's because the person asking simply doesn't realise additional information is relevant or how complicated things can be.

It's not unusual for crucial nuggets to be disclosed after a number of posts which completely alter the context of the original question.

trampie

zagfles wrote: »

The thing that confuses people is that they look at the annual allowance rules and think that means they can put a large lump sum into their pension. And it's true that they probably could without exceeding the annual allowance.

BUT...there is another limit, a separate limit which is not part of and nothing to do the annual allowance. You can't get tax relief if you put more than 100% of your gross earnings into a pension. This usually makes it a bad idea, because you get no tax relief on the way in but may pay tax on the way out. Also some pension providers T&Cs say you can't do it, as it's extra admin for them. As this is nothing to do with the annual allowance, the carry forwards rules etc don't apply.

I have heard that carry forward allows a person to make pension contributions in excess of the annual allowance and receive tax relief.