How much tax relief for carry forward pension allowance?

intalex

If I'm looking to max out my current year pension contributions of £40k which will attract part-40% and part-20% tax relief, will any additional pension contributions (using carry forward allowance) be limited to just 20% tax relief based on tax paid in the current year, or can it be subject to 40% tax relief on the basis that this was the tax paid on the carry forward amount in the prior year?

I'm aware the overall limit is current year earnings, just trying to see if it makes sense to all of it into my pension, but of course it doesn't make sense if I'm only getting 20% relief (and 0% relief for the amount within my personal allowance).

Thanks in advance!

Dazed_and_confused

You only ever get pension tax relief in the tax year the pension contribution is actually paid in.

Each method of pension contribution works slightly differently so the exact way it will work depends on which method(s) you are using - what are yours?

It is possible to get basic rate tax relief for contributions within the Personal Allowance, the trick is to make sure you use the right method of contributing to achieve this.

intalex

Thanks Dazed & Confused, I was only interested in doing this if the tax relief covered the 40% I had already paid in previous tax years. I guess it's truly "use it by 5th April or lose it" when it comes to additional tax relief...

The method I use now is to pay 80% of gross amount directly into the pension, allow the pension provider to add 20% basic tax relief (i.e. 25% of amount paid in), then claim 20% additional tax relief (i.e. 25% of amount paid in) from HMRC.

Dazed_and_confused

The method I use now is to pay 80% of gross amount directly into the pension, allow the pension provider to add 20% basic tax relief (i.e. 25% of amount paid in), then claim 20% additional tax relief (i.e. 25% of amount paid in) from HMRC

There is no "20% additional tax relief" you can claim from HMRC.

Relief at source contributions simply increase the amount of basic rate tax you can pay which in turn could reduce the amount of higher rate tax payable. This could work out at about 20% (or 21%) but it is not a fixed 20%.

If you only pay higher rate tax on £1 of your income the maximum higher rate tax relief you could get is 21p whether you have contributed £1 or £10,000.

intalex

Dazed_and_confused wrote: »

Relief at source contributions simply increase the amount of basic rate tax you can pay which in turn could reduce the amount of higher rate tax payable.

Not sure I fully understand what you mean, but I'm not referring to salary sacrifice where full relief is at source, I'm referring to direct payment into my pension. I'm also referring to amounts after the £50k annual threshold when I mention the "20% additional tax relief" to be claimed from HMRC.

BoGoF

If the amount you have paid in the current year means you have extinguished any 40% liability you will only get 20% relief on any carry forward element.

Dazed_and_confused

Not sure I fully understand what you mean, but I'm not referring to salary sacrifice where full relief is at source, I'm referring to direct payment into my pension. I'm also referring to amounts after the £50k annual threshold when I mention the "20% additional tax relief" to be claimed from HMRC.

There is no pension tax relief with salary sacrifice. Salary sacrifice is where you agree to a reduced salary in return for your employer contributing extra to a pension.

Relief at source contributions are typically where you contribute the net amount to a personal pension or SIPP and the pension provider, courtesy of HMRC, adds the 25% uplift.

So say you contribute £4,000 then you end up with £5,000 in your pension fund.

Contributions like these do not attract an extra 20% pension tax relief from HMRC. What they do is increase the amount of your basic rate tax band which can mean you pay more tax at 20% and less at 21%, 40% or 41%.

This may mean the gross contribution saves you an additional 1%, 20% or 21% but that depends on where you are resident for tax purposes and what your overall tax position is. In the example above paying £5,000 gross does not guarantee an additional £1,000 tax relief. If you have only paid a small amount of additional rate or higher rate tax then that will limit the additional tax relief due.

intalex

Dazed_and_confused wrote: »

There is no pension tax relief with salary sacrifice. Salary sacrifice is where you agree to a reduced salary in return for your employer contributing extra to a pension.

Relief at source contributions are typically where you contribute the net amount to a personal pension or SIPP and the pension provider, courtesy of HMRC, adds the 25% uplift.

So say you contribute £4,000 then you end up with £5,000 in your pension fund.

Contributions like these do not attract an extra 20% pension tax relief from HMRC. What they do is increase the amount of your basic rate tax band which can mean you pay more tax at 20% and less at 21%, 40% or 41%.

This may mean the gross contribution saves you an additional 1%, 20% or 21% but that depends on where you are resident for tax purposes and what your overall tax position is. In the example above paying £5,000 gross does not guarantee an additional £1,000 tax relief. If you have only paid a small amount of additional rate or higher rate tax then that will limit the additional tax relief due.

I understand now, I've moved overseas and am done with UK payroll for this tax year having already paid all applicable 40% tax, so I guess I will have to claim back the additional tax relief via self-assessment.

Dazed_and_confused

Self Assessment isn't usually necessary just for pension contributions.

But if you are having to complete one for some other reason then yes any additional tax relief due will come out through your SA302 calculation once you complete the return.

Albermarle

Self Assessment isn't usually necessary just for pension contributions.

Up until 18/19 I always filled in a self assessment on line . I have a salsac arrangement at work and pay in irregular lump sums to a separate pension ( yes I know I am losing out 2 % NI on these payments) .
So I put these separate contributions ( + 25% relief added by the provider ) which vary each year, in the correct self assessment box.
Now HMRC has sent me a letter saying I should not fill in self assessment in future .
So presume this backs up what you are saying is that HMRC system can pick up these extra contributions and adjust my tax automatically ?

Dazed_and_confused

So presume this backs up what you are saying is that HMRC system can pick up these extra contributions and adjust my tax automatically ?

Not quite.

As you have been filing Self Assessment returns your current tax code may include a provisional adjustment to allow tax relief for the current tax year but you would have to inform HMRC if the amount you were contributing changed.

Note that when it comes to pension contributions your tax code only ever allows the tax relief due for the tax year the tax code relates to. It never includes anything to allow tax relief for an earlier tax year.