Previous years unused pension

Dazed_and_C0nfused

spock007 said:

I REALLY appreciate the help btw. 
So it sounds like I can carry forward allowance but the RELIEF from previous years is not applicable. 
It's only the relief in THIS year that counts. 
While not as financially beneficial, this makes the calculation MUCH easier.

I'd been sitting drawing up a huge spreadsheet, too - total headache lol!!


Very roughly... unused allowance: 
17/18 = 25k
18/19 = 16k
19/20 = 4k
20/21 = 1k

So although I've paid £40k this year (pretty much) into work pension, I am free to open up a SIPP and dump £25k TOTAL into it to use up 17/18 allowance (the £25k includes tax relief added in).

I believe an additional rule is that total contributions (max always being £40k) must not exceed salary for each of those tax years which I want to carry forward for. In all cases I earned over £40k.

I think you are overcomplicating things.

Firstly is this actually true?

I've paid £40k

Secondly what will your P60 show your taxable pay to be in 2020:21?

spock007

My pension is taken from gross. 

spock007

Dazed_and_C0nfused said:

spock007 said:

I REALLY appreciate the help btw. 
So it sounds like I can carry forward allowance but the RELIEF from previous years is not applicable. 
It's only the relief in THIS year that counts. 
While not as financially beneficial, this makes the calculation MUCH easier.

I'd been sitting drawing up a huge spreadsheet, too - total headache lol!!


Very roughly... unused allowance: 
17/18 = 25k
18/19 = 16k
19/20 = 4k
20/21 = 1k

So although I've paid £40k this year (pretty much) into work pension, I am free to open up a SIPP and dump £25k TOTAL into it to use up 17/18 allowance (the £25k includes tax relief added in).

I believe an additional rule is that total contributions (max always being £40k) must not exceed salary for each of those tax years which I want to carry forward for. In all cases I earned over £40k.

I think you are overcomplicating things.

Firstly is this actually true?

I've paid £40k

Secondly what will your P60 show your taxable pay to be in 2020:21?

Sorry what I mean is that total contributions into pension will be £40k (slightly short but let's just say that). 
--> This includes money taken from my gross pay, employer contribution, salary sacrifice and the government adds to this all to make £40k.

My taxable pay is less my pension contributions.

spock007

Mine is a net pay arrangement.
So if salary was £10k a month, I pay 40% = £4k to pension. 
I also get salary sacrifice and employer's contribution added.
Taxable salary per month is then £6k.


FYI I found out I can put it into a SIPP created this year - doesn't have to go into same pension scheme. This is informative: https://www.aegon.co.uk/support/faq/pension-technical/carry-forward-faq.html

Dazed_and_C0nfused

Net pay and salary sacrifice are two totally different methods.

Net pay means you contribute to a pension.  There is no tax relief added to he pension with net pay, you contribute say £100 but your net pay only drops by say £80 or £60 as you have less income to be taxed.

Salary sacrifice means you don't contribute to a pension.  You agree to a lower salary in return for your employer contributing.  That is why there is no pension tax relief with salary sacrifice.  The tax saving comes from not having the salary to pay either tax or National Insurance on in the first place.

How much do you want to go into your pension fund?

spock007

OK I've definitely been making this more difficult than it ought to be.
Just using this calculator I get ~£21k allowance left to use: https://www.tax.service.gov.uk/pension-annual-allowance-calculator

I can simply dump that into a SIPP and off I go. 
I don't think I even have to inform HMRC or Hargreaves - HMRC contact Hargreaves every month and it's all done in the background. 

If this is the case then THANK HEAVENS!!

spock007

Dazed_and_C0nfused said:

Net pay and salary sacrifice are two totally different methods.

Net pay means you contribute to a pension.  There is no tax relief added to he pension with net pay, you contribute say £100 but your net pay only drops by say £80 or £60 as you have less income to be taxed.

Salary sacrifice means you don't contribute to a pension.  You agree to a lower salary in return for your employer contributing.  That is why there is no pension tax relief with salary sacrifice.  The tax saving comes from not having the salary to pay either tax or National Insurance on in the first place.

How much do you want to go into your pension fund?

Ah...... this is why I'm an engineer and not an accountant!
I understand..... so yes. I am paid gross. I get salary sacrifice. 
My net pay reduces )owing to what goes into pension) and I'm taxed on that net pay. 
There is no "relief" as such - I understand now. I'm really sorry, not used to the terminology!

I basically just used that calculator and I want to dump the whole £21k unused allowance into a SIPP. 

Apparently the relief gets added back in, 20% automatically and the rest once HMRC contact Hargreaves. HOWEVER rates of relief are different in Scotland and I think I have to claim back 40% via tax return.

Does this sound right? 

If you guys are ever up Edinburgh way, I owe you a drink!!

Dazed_and_C0nfused

No.  And thanks.

The SIPP provider only ever adds the basic rate tax relief.

So if you paid them £16,800 they would add £4,200 giving you a fund of £21,000.

The personal tax benefit to you will spend on what your P60 shows your taxable pay to be for 2020:21.  

It may be nothing whatsoever.  It may be an extra 1% of part of the £21k.

Are you certain you are eligible to contribute £21k (gross) in the current tax year?

spock007

Right - so I'll get basic 20% relief and the Scottish 21% and 40% band info I have to write to HMRC about, and that comes back as reduction in taxable salary for the year (but since I'll have paid tax on it already, it comes to me in form of cheque). 

Using the HMRC calculator with the pension shortfall amounts I wrote about for each tax year, it tells me I have £21k to pay in. So I pay £16.8k, they add £4.2k to make £21k and I get a cheque later down the line for claiming higher rate relief. 

Thanks so much!!

spock007

Oh - one thing I think I missed... I can't put any more into a pension this year than my TAXABLE earnings, right? 
In that case, because I routinely push myself below the 40% band, I definitely will NOT be able to put above amounts in. It will be much less. 

E.g. If I push myself down to £41k but get a bonus in Jan which takes me up to £46k taxable earnings... and I've already put £40k into employer pension scheme, this means I can only pay an extra £6k into pension via carry forward?