Pension carry over question

Adyinvestment

I have earned an extra large amount this year and am looking at pension carry over, I am self employed.

For reference the only pension I have is a 30 year old one where I contracted out of serps and now resides with Re-assure worth 36,000 and have not paid anything in for around 29 years - I believe this is enough to qualify for the carry over for the last 3 years?

Last 3 years earnings are below £100,000 so not affected by any tapers

If my calculations are correct this would mean I could physically pay into a new pension or the Re-assure pension £96,000 to make the full £120,000 (3x £40,000) with £24,000 20% tax relief?
I could then claim the higher rate (this years tax band) on my self assesment?

There will also be this years allowance also but I do not know yet whether any tapers will be involved (although likely)

Also does HMRC just automatically know about the carry over or do you have to do something?

Dazed_and_C0nfused

How much do you expect your pensionable earnings (business profits?) to be in the current tax year?

Pru adviser has this regarding membership of a scheme in previous years.

Anyone who is eligible can carry forward any unused annual allowances from a tax year in which they were a member of, or joined, a UK registered pension scheme. This is a very broad rule. ‘Member’ includes:

Active: currently accruing/ building up benefits in the scheme, paying individual contributions or receiving contributions on their behalf, for example, from an employer or any other third party

Deferred: has a paid-up fund, or a right to receive pension benefits at a later date

Pensioner: receiving payment of benefits from the scheme, such as a scheme pension

Pension credit: member has received a pension credit (following a divorce and as directed in a pension sharing court order)

Adyinvestment

Hard to say at this point but the minimum will be £250,000 and potentially much more.

I am hoping the existing pension will count - it is active in that it has been building up profits over the years. You have me a little worried now as I would not like to pay all that money in and then get taxed on it! Is there any way to check?

Dazed_and_C0nfused

This is a very complex area and I would suggest you take a look at this to start with,

https://www.pruadviser.co.uk/knowledge-literature/oracle-plus/tapered-annual-allowance/

Adyinvestment

I did the Gov pension carry over calculator which came back saying £130k (I guessed this years earnings and it tapered it to £10k for this tax year) I was going to play it safe and not take into account this years allowance.

I wanted to know if my calculations were correct (I have not been paying in so am not 100% sure) and how to best achieve this.

Now I would also like to clarify my existing pension will count.

NottinghamKnight

OP do you operate as a sole trader or through a limited company?

Dazed_and_C0nfused

https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/tapering-of-annual-allowance-for-high-incomes/

Adyinvestment

NottinghamKnight said:

OP do you operate as a sole trader or through a limited company?

Sole trader with no way to delay any meaningful profit to the next tax year.

jamesd

Yes, it counts. Any common UK  pension in your name that existed in the earlier tax year suffices. So do some foreign ones.

MK62

Adyinvestment said:

I did the Gov pension carry over calculator which came back saying £130k (I guessed this years earnings and it tapered it to £10k for this tax year) I was going to play it safe and not take into account this years allowance

You can only use carry forward from previous years after you have used this tax year's annual allowance (though in your case this isn't really an issue)......so you first need to find out what that is (or is likely to be)......under the new taper limits this year, it's unlikely that your annual allowance would be tapered down to £10000 though. If your adjusted income is £250000, then AIUI your AA would be tapered down to £35000......so you may be able to put up to £155000 (gross) into a pension......though obviously the exact figure would depend on the exact "adjusted income" amount.

You may not know exactly what your total adjusted income will be until late in the tax year, so I'd open a new pension now and start paying in (I'm guessing that your ReAssure pension won't be open for new contributions).......you don't want to get to the end of March and discover it's too late to open one and get the contributions in before 5/4/21.......actually paying those, in practice, could also be problematic if you leave it all very late....you may not be able to pay a potential £124k on your debit card in one hit...😉......it would be incredibly frustrating to set it all up and then fail at the end due to bank limits and anti-fraud measures.....

hugheskevi

Few thoughts:

• A large pension contribution would reduce Threshold Income taking you out of tapered Annual Allowance territory
• HMRC do not need to be notified unless you have a tax charge due. So use of carry-forward does not require you to tell HMRC.
• If income is going to be this high in future years, you may want to consider not contributing as much as possible this year. That will leave you headroom to contribute more in future years to reduce Threshold Income below £200,000.
• If making a very large contribution to use up all available Annual Allowance, your taxable income is likely to be reduced to around the point the Personal Allowance taper takes effect (£100K-£125K), or slightly below.