SIPP - annual allowance and carry forward

bigadaj

You seem to want to make this very complicated. Assuming no employee contributions then you can contribute up to £45k gross into a pension fund, so 80% of this for a sipp. This assumes that you have at least £5k carry forward from previous years when you were a member of a pension scheme. If you are limited to £40k then your final calculation looks about right. 

Albermarle

So, £40K-(£2,700+25%)=£36,625-20% (tax relief that will be claimed from HMRC)=£29,300 is the amount that can be contributed into SIPP for which the provider will claim tax relief from HMRC. 

This is correct 

£45,000+6% (employer contribution)=£47,700 is the gross salary for SIPP annual allowance purposes

Your terminology is confusing . If you substitute 'gross salary' for 'amount' it makes more sense .

Tykva

Albermarle said:

So, £40K-(£2,700+25%)=£36,625-20% (tax relief that will be claimed from HMRC)=£29,300 is the amount that can be contributed into SIPP for which the provider will claim tax relief from HMRC. 

This is correct 

£45,000+6% (employer contribution)=£47,700 is the gross salary for SIPP annual allowance purposes

Your terminology is confusing . If you substitute 'gross salary' for 'amount' it makes more sense .

Thank you very much for the confirmation! Because all I've read about SIPP so far was so confusing to me, I tried to simplify my terminology to be understood easier. I appreciate your help a lot.

Tykva

bigadaj said:

You seem to want to make this very complicated. Assuming no employee contributions then you can contribute up to £45k gross into a pension fund, so 80% of this for a sipp. This assumes that you have at least £5k carry forward from previous years when you were a member of a pension scheme. If you are limited to £40k then your final calculation looks about right. 

Thank you for your comments. 
So does carry forward means that I carry forward my salary from previous years not the annual allowance?
Let's say, this year gross is £45K, next year is £35K. I contribute £40K this year and £40K next year (£35K this year's gross +£5K last year's left of the gross).

MallyGirl

you carry forward the remain of the allowance. If you only earn £35k next year then that is all you can contribute

Albermarle

Tykva said:

bigadaj said:

You seem to want to make this very complicated. Assuming no employee contributions then you can contribute up to £45k gross into a pension fund, so 80% of this for a sipp. This assumes that you have at least £5k carry forward from previous years when you were a member of a pension scheme. If you are limited to £40k then your final calculation looks about right. 

Thank you for your comments. 
So does carry forward means that I carry forward my salary from previous years not the annual allowance?
Let's say, this year gross is £45K, next year is £35K. I contribute £40K this year and £40K next year (£35K this year's gross +£5K last year's left of the gross).

No 

jamesd

So does carry forward means that I carry forward my salary from previous years not the annual allowance?

No. For pensions you can never use income from previous years as part of your earnings limit. It's only unused annual allowance from past years that can be  used and then only if the income limit plus employer contributionss are high enough.

Tykva

Albermarle said:

Tykva said:

bigadaj said:

You seem to want to make this very complicated. Assuming no employee contributions then you can contribute up to £45k gross into a pension fund, so 80% of this for a sipp. This assumes that you have at least £5k carry forward from previous years when you were a member of a pension scheme. If you are limited to £40k then your final calculation looks about right. 

Thank you for your comments. 
So does carry forward means that I carry forward my salary from previous years not the annual allowance?
Let's say, this year gross is £45K, next year is £35K. I contribute £40K this year and £40K next year (£35K this year's gross +£5K last year's left of the gross).

No 

Ok, thank you.
Is it: this year gross is £45K, last year £45K, the year before £45K. But contributions last year and the year before were £35K each only. As a result, this year's annual allowance becomes £50K? The remaining annual allowance is brought to this year. Thank you.

Albermarle

Is it: this year gross is £45K, last year £45K, the year before £45K

Previous years earnings are not relevant to this year 

But contributions last year and the year before were £35K each only. As a result, this year's annual allowance becomes £50K? The remaining annual allowance is brought to this year.

If the total amount that went into the pension ( your contributions + tax relief + employer contributions ) was £35K in the previous two tax years . Then yes you could add up to 50K in this tax year ( including your contributions+ tax relief + employers contributions ). However if your salary was £45K then that is the max you could add gross( including tax relief) Then + employers contribution as long as in total it did not exceed £50K