Pension Carry Forward

skycatcher

I have read previous threads on this but i am still not comfortable that I understand for our particular circumstances.
My wife is self employed and makes a small profit of around 9K per year. She started a SIPP a couple of years ago and has been paying in most of this profit (subject to the relevant tax relief). This year, she is likely to have roughly £9k profit again but due to cash flow issues wont have the money to put into the SIPP. Am I right in thinking that if she doesnt put into the SIPP this year she can put £18k in next (i.e. this years £9k plus next years £9k). If this is correct how easy is it filling in the tax forms?

Thanks for reading.

Dazed_and_C0nfused

Will she make £18k profit next year?

Linton

As Dazed is implying.  You cannot pay more into a pension in any one tax year than your earned income.  There is no carry forward.

skycatcher

Linton said:

As Dazed is implying.  You cannot pay more into a pension in any one tax year than your earned income.  There is no carry forward.

So does carry forward only apply to the £40k cap?  So if she only makes £9k next year then shes missed out fully this year if she doesn't make her payment to the SIPP?
If this is the case then I clearly didn't understand CF and I am so greatful to you guys!

Albermarle

So if she only makes £9k next year then shes missed out fully this year if she doesn't make her payment to the SIPP?

That is correct .

For example if you only add £5K to a SIPP three years running , you can carry forward the unused allowance ( £35K )  , so in the fourth year you could in theory add £145K . However to do this you would have to earn £145K in that fourth year.

Whatever you earned in the previous three years above £5K is not relevant.

swindiff

Albermarle, I think that is the clearest and most easy to understand explanation on carry forward that I have seen on this forum.  Many of them have confused me previously 

Albermarle

Albermarle, I think that is the clearest and most easy to understand explanation on carry forward that I have seen on this forum.  Many of them have confused me previously 

Thanks, but with hindsight it is probably not 100% accurate as someone earning a salary as high as £145K, would probably be restricted on what they could add due to the rules about very high earners .

However it still makes the point , which is the general idea.

zagfles

See this thread. https://forums.moneysavingexpert.com/discussion/6102331/pension-contribution-limit-in-a-tax-year

Not exactly the same scenario, but the point is there are two separate limits which are parts of totally different legislation, have totally different rules and need to be considered separately. The earned income tax relief limit and the annual allowance.

The annual allowance is not the limiting factor for a low earner, the earned income tax relief limit is. Carry forwards only applies to the AA.

hyperhypo

I have a similar lack of comprehension as OP did on this but my query is who calculates the "carry forward" headroom ? HMRC / pension platform , individual (how?).  I have c. £48k  available as the taxable element of my employment settlement...paid in late April 2020. I figured i won't incur charges , ie can do this ,  and so contacted hmrc to run numbers over. I have sufficient headroom in this current tax year for the £8k element (and in previous years if needs be).

What i don't understand is how the calculation is made and by whom ? HMRC told  me yesterday that provider (Aegon ARC) would do it but when i spoke  to them they said no you've got to engage an IFA (?).  Why?
Surely HMRC know how much i've earned in the relevant years, and Aegon know contribution rates.
I don't know who drives the carry forward procedure ? Presumably anything over £40k triggers something at HMRC , do they then look at the individuals previous contributions to check whether a charge is applicable ?

Dazed_and_C0nfused

It's up to you to do it.  Use an IFA to help if you want but there is probably no need.

Albermarle

Calculate it yourself, but keep details of the calculation in case HMRC decide to check up on you .