Pension tax relief question

Albermarle

Your calculation is correct -the £26,700 , will end up as £24,030 ( I also read the other thread ) 
HMRC do not care how you put money in a DC pot , so lump sum is no problem as long as you have enough earned taxable income to cover it .

Mick70

Albermarle said:

Your calculation is correct -the £26,700 , will end up as £24,030 ( I also read the other thread ) 
HMRC do not care how you put money in a DC pot , so lump sum is no problem as long as you have enough earned taxable income to cover it .

Thank you .  

Regarding the 3 year allowance rule , so if paid in 50k lump sum as an example would the govt still add 25% to this  ? If had paid nothing in the previous 2 years as was in a DB scheme then  ?

Paul_Herring

so if paid in 50k lump sum as an example would the govt still add 25%

Provided the total amount you add to your pension fund, including tax relief, is less than or equal your gross pay for the tax year.

Mick70

Paul_Herring said:

so if paid in 50k lump sum as an example would the govt still add 25%

Provided the total amount you add to your pension fund, including tax relief, is less than or equal your gross pay for the tax year.

Thanks Paul .  This is where I am confused.  How are you meant to take advantage of the 3 yr cfwd allowance where “in theory” if you had never contributed before you should be able to pay in 3yrs of 40k allowance ? 

Paul_Herring

This is where I am confused.  How are you meant to take advantage of the 3 yr cfwd allowance where “in theory” if you had never contributed before you should be able to pay in 3yrs of 40k allowance ? 

You can only take advantage of the carry-forward, if you're earning enough in that tax year to match whoever's carried forward (or your employer is contributing sums taking the overall contribution over £40K.)

This is why, for example - and simplistically, anyone earning under £40K cannot use carry-forward.

Mick70

But if earning above 40k you can put in extra if didn’t use allowance previous years ?

Paul_Herring

But if earning above 40k you can put in extra if didn’t use allowance previous years ?

Up to the lower of your gross wage, or the amount of carry-forward available, yes.

Dazed_and_C0nfused

Mick70 said:

But if earning above 40k you can put in extra if didn’t use allowance previous years ?

Don't forget that pension tax relief is only given for the tax year you make the pension contribution in.

So carry forward may allow you to contribute more than £40k but any higher rate tax relief due will be based on your current tax year taxable income/rates.

For example if you contribute say £48k and this gets the 25% top up to become £60k in your pension fund then your basic rate band in the current tax year is increased from £37,500 to £97,500 and your tax liability calculated in accordance with that increased basic rate tax band.

Your tax liability for previous tax years is not changed at all. 

Ron_Weasley

Paul_Herring said:

This is where I am confused.  How are you meant to take advantage of the 3 yr cfwd allowance where “in theory” if you had never contributed before you should be able to pay in 3yrs of 40k allowance ? 

You can only take advantage of the carry-forward, if you're earning enough in that tax year to match whoever's carried forward (or your employer is contributing sums taking the overall contribution over £40K.)

This is why, for example - and simplistically, anyone earning under £40K cannot use carry-forward.

Sorry to resurrect an old thread, but I missed this.  I was planning on carrying forward a £40k allowance from a year where my income was zero.  Are you saying that is not allowed?

Anonymous101

Ron_Weasley said:

Paul_Herring said:

This is where I am confused.  How are you meant to take advantage of the 3 yr cfwd allowance where “in theory” if you had never contributed before you should be able to pay in 3yrs of 40k allowance ? 

You can only take advantage of the carry-forward, if you're earning enough in that tax year to match whoever's carried forward (or your employer is contributing sums taking the overall contribution over £40K.)

This is why, for example - and simplistically, anyone earning under £40K cannot use carry-forward.

Sorry to resurrect an old thread, but I missed this.  I was planning on carrying forward a £40k allowance from a year where my income was zero.  Are you saying that is not allowed?

You can carry forward the full £40k from a year if you earned zero in that year. The comment referred to the year that you intend to make the contribution in. You cannot contribute more than you earn in any tax year. So if you never earn more than £40k, carry forward will never be available to you.

In theory you could have 3 years of zero contributions so £120k worth of carry forwards available, but if you're earning £40k for the following 3 years then your maximum allowance contribution is £40k pa so you'll never be able to make additional contributions over the £40k and hence not use any of the £120k carry over.