Confused by annual allowance carry forward rules

Swipe

I'd be very grateful if someone could help me. I'm completely confused by annual allowance carry forward rules. My understanding is that you can only pay in to a pension the equivalent of the maximum gross income/salary in one year. My confusion comes by seeing on a forum thread that you can only make use of the carry forward rules up to your current year's maximum gross income/salary if you only earn more than £40k in a given tax year. Is this correct?

I just ran the hmrc annual allowance carry forward calculator and it makes no reference to annual salary and assumes a £40000 allowance for previous years regardless of how much I earned in a given year. So my question is, can I make use of any previous years carry forward amounts or not? I obviously don't want to throw £59k of my savings into this year's SIPP and be in dire tax trouble if this isn't correct. For reference I earned £43k for 17/18 and 18/19 tax years. But only earned £36k for 19/20 and 20/21. Results below.

Any unused allowances are carried forward for up to 3 previous years.

Year	Available annual allowance	Available money purchase annual allowance	Pension savings	Amount on which tax is due	Unused annual allowance
6 April 2020 to 5 April 2021	£134,712	£0	£35,900	£0	£59,592
6 April 2019 to 5 April 2020	£152,312	£0	£17,904	£0	£94,712
6 April 2018 to 5 April 2019	£118,916	£0	£6,604	£0	£112,312
6 April 2017 to 5 April 2018	£79,696	£0	£780	£0	£78,916
6 April 2016 to 5 April 2017	£40,000	£0	£304	£0	£39,696

AnotherJoe

Sorry, you're out of luck.  AIUI, you need to use up this years allowance first before you go back to previous years.

So for example if you earned £60k this year, you could only use up £20k from previous years. Or £36k, well you cant use the full £40k so tough.

Thats my understanding anyway.

Swipe

OK thanks, that's what I thought. Just wanted to make sure.

zagfles

Swipe said:

I just ran the hmrc annual allowance carry forward calculator and it makes no reference to annual salary and assumes a £40000 allowance for previous years regardless of how much I earned in a given year.

Which is exactly right. The annual allowance is not affected at all by annual salary, with the exception of very high earners (6 figure income) who are subject to a taper. If you've never earned £110k+ and are not subject to the MPAA then you have an annual allowance of £40k and can carry forwards AA from previous years exactly as the calculator shows. 

BUT - completely outside the AA, and nothing whatsoever to do with the AA, there is a separate tax relief limit which says in any tax year you can't get tax relief on more than 100% of your relevant earnings (defined mainly as earned income, not pension or investment income).

So you might have £59k of AA available to you this tax year. However, if, say you only had £30k of earned income, you could only get tax relief on £30k (gross) of pension contributions. So eg you could put £24k net into a SIPP and get £6k of tax relief. If you put more than £24k in, you would not be entitled to tax relief on the extra and you would need to inform the SIPP provider, they might accept the contribution and not claim tax relief, or they might refuse to accept the contribution. If you accidently put in more than earnings, you can claim a refund of the excess. But this is nothing to do with the AA.

lake888

I have a similar query as OP.  My taxable income for 19/20 was around £42000.  If my allowance was ok after applying the carry forward rule, can I contribute upto £42000 in that year according to the second rule regarding tax relief?

Dazed_and_C0nfused

lake888 said:

I have a similar query as OP.  My taxable income for 19/20 was around £42000.  If my allowance was ok after applying the carry forward rule, can I contribute upto £42000 in that year according to the second rule regarding tax relief?

You are a couple of months to late to contribute anything or receive any tax relief for 2019:20

lake888

Sorry for the confusion. I mean if I have contributed £42000 in 19/20, is that all ok? Thanks.

zagfles

lake888 said:

I have a similar query as OP.  My taxable income for 19/20 was around £42000.  If my allowance was ok after applying the carry forward rule, can I contribute upto £42000 in that year according to the second rule regarding tax relief?

Yes. Assuming £42k was your taxable "relevant earnings" (ie employment income and similar), you can get tax relief on £42k gross contributions.

Albermarle

lake888 said:

Sorry for the confusion. I mean if I have contributed £42000 in 19/20, is that all ok? Thanks.

As long as you did not contribute £42K + tax relief added . As Zagfles said it would be £42 K gross max.
For annual allowance purposes you also have to include any employer contributions in your calculations.

lake888

For annual allowance purposes, as it is a DB pension, I understand it is pension input amount that needs to be considered.  I get the figure from annual pension statements and using the allowance calculator as mentioned by OP and it is ok.  Is there anything I have missed?

Albermarle

I assumed it was a DC pension so you can ignore my comments .