Carry Forward all at once?

Barry_Bear

To pay more than £40,000 into a pension you can use carry forward for any of the last 3 years when you did not use the £40,000 allowance. If year 3 is already fully used, then year 2 is the next available to fill, then the prior year. Do you have to use the full allowance at once, or can you use up the allowance with 2 contributions?
If you want to pay in £50,000, and year 3 is full, you would pay:
2017 - full
2018 - £10,000
2019 -
2020 - £40,000
Would I then be able to pay in £70,000 next year by using the remaining £30,000 unused 2018 allowance the next year?
2018 - £30,000
2019 -
2020 - full
2021 - £40,000

hugheskevi

Do you have to use the full allowance at once, or can you use up the allowance with 2 contributions?

You can use it up with as many contributions as you wish.

If you want to pay in £50,000, and year 3 is full, you would pay:
2017 - full
2018 - £10,000
2019 -
2020 - £40,000
Would I then be able to pay in £70,000 next year by using the remaining £30,000 unused 2018 allowance the next year?
2018 - £30,000
2019 -
2020 - full
2021 - £40,000

You are thinking about this incorrectly.

Your pension contribution (the "pension input") does not change for past years. If you pay in £70,000 for the current year, that is your pension input for the current year.

So if you pay in £50,000 for 2020/21 you carry forward £10,000 from 2018/19 (as 2017/18 had none available) and no charge would be due.

If you then contributed £70,000 in 2021/22 you would use the remaining £20,000 from 2018/19 and again no charge would be due. You would still have the remaining unused Annual Allowance from 2019/20 to carry-forward for further breaches.

Note this assumes tapered Annual Allowance does not apply.

jampot7us

May I ask if you can just add in over your salary level ..I dont earn anywhere near 40k. Do HMRC just handle it or do you have to inform them you are going over that years allowance using previous years?

NottinghamKnight

jampot7us said:

May I ask if you can just add in over your salary level ..I dont earn anywhere near 40k. Do HMRC just handle it or do you have to inform them you are going over that years allowance using previous years?

No you are limited to your relevant earnings for the tax year. If you earn over £40k then you can contribute more and don't have to tell HMRC but have to ensure you have the evidence to show you are complaint if they ask.

Dazed_and_C0nfused

jampot7us said:

May I ask if you can just add in over your salary level ..I dont earn anywhere near 40k. Do HMRC just handle it or do you have to inform them you are going over that years allowance using previous years?

In which case carry forward is not available to you.

Barry_Bear

hugheskevi said:

Do you have to use the full allowance at once, or can you use up the allowance with 2 contributions?

You can use it up with as many contributions as you wish.

If you want to pay in £50,000, and year 3 is full, you would pay:
2017 - full
2018 - £10,000
2019 -
2020 - £40,000
Would I then be able to pay in £70,000 next year by using the remaining £30,000 unused 2018 allowance the next year?
2018 - £30,000
2019 -
2020 - full
2021 - £40,000

You are thinking about this incorrectly.

Your pension contribution (the "pension input") does not change for past years. If you pay in £70,000 for the current year, that is your pension input for the current year.

So if you pay in £50,000 for 2020/21 you carry forward £10,000 from 2018/19 (as 2017/18 had none available) and no charge would be due.

If you then contributed £70,000 in 2021/22 you would use the remaining £20,000 from 2018/19 and again no charge would be due. You would still have the remaining unused Annual Allowance from 2019/20 to carry-forward for further breaches.

Note this assumes tapered Annual Allowance does not apply.

I don't understand this bit in bold - if I pay £70,000 in 2021 £40,000 has to fill the current year it's paid in 2021, leaving £30,000 to fill the next unallocated allowance for 2018. Where does the "remaining £20,000" for 2018 come from? If I previously allocated £10,000 to 2018, isn't there up to £30,000 still unused for 2018?

hugheskevi

Barry_Bear said:

hugheskevi said:

Do you have to use the full allowance at once, or can you use up the allowance with 2 contributions?

You can use it up with as many contributions as you wish.

If you want to pay in £50,000, and year 3 is full, you would pay:
2017 - full
2018 - £10,000
2019 -
2020 - £40,000
Would I then be able to pay in £70,000 next year by using the remaining £30,000 unused 2018 allowance the next year?
2018 - £30,000
2019 -
2020 - full
2021 - £40,000

You are thinking about this incorrectly.

Your pension contribution (the "pension input") does not change for past years. If you pay in £70,000 for the current year, that is your pension input for the current year.

So if you pay in £50,000 for 2020/21 you carry forward £10,000 from 2018/19 (as 2017/18 had none available) and no charge would be due.

If you then contributed £70,000 in 2021/22 you would use the remaining £20,000 from 2018/19 and again no charge would be due. You would still have the remaining unused Annual Allowance from 2019/20 to carry-forward for further breaches.

Note this assumes tapered Annual Allowance does not apply.

I don't understand this bit in bold - if I pay £70,000 in 2021 £40,000 has to fill the current year it's paid in 2021, leaving £30,000 to fill the next unallocated allowance for 2018. Where does the "remaining £20,000" for 2018 come from? If I previously allocated £10,000 to 2018, isn't there up to £30,000 still unused for 2018?

You are right, there is a mistake in the maths, corrected below (I missed off the last £10,000).

For 2018/19 £10,000 was originally contributed, leaving £30,000 of unused Annual Allowance available for carry-forward. The £50,000 contribution in 2020/21 uses up £10,000 of that £30,000, leaving £20,000 of unused Annual Allowance from 2018/19 available for carry-forward to 2021/22.

The £70,000 contribution in 2021/22 uses up the remaining £20,000 from 2018/19 and then looks to 2019/20 for unused Annual Allowance. There were no contributions in 2019/20, so £40,000 of unused Annual Allowance is available. £10,000 of this £40,000 is used up so no charge is due, and £30,000 remains available for use in 2022/23. 

jampot7us

NottinghamKnight said:

jampot7us said:

May I ask if you can just add in over your salary level ..I dont earn anywhere near 40k. Do HMRC just handle it or do you have to inform them you are going over that years allowance using previous years?

No you are limited to your relevant earnings for the tax year. If you earn over £40k then you can contribute more and don't have to tell HMRC but have to ensure you have the evidence to show you are complaint if they ask.

Ty..So because I dont earn 40k+..previous years count for nothing in my circumstance and i cant put in more than my current gross salary if not maxed out the the previous 3?

ratechaser

jampot7us said:

NottinghamKnight said:

jampot7us said:

May I ask if you can just add in over your salary level ..I dont earn anywhere near 40k. Do HMRC just handle it or do you have to inform them you are going over that years allowance using previous years?

No you are limited to your relevant earnings for the tax year. If you earn over £40k then you can contribute more and don't have to tell HMRC but have to ensure you have the evidence to show you are complaint if they ask.

Ty..So because I dont earn 40k+..previous years count for nothing in my circumstance and i cant put in more than my current gross salary if not maxed out the the previous 3?

Correct, it's only current year earnings that determine how much you can contribute.

zagfles

jampot7us said:

NottinghamKnight said:

jampot7us said:

May I ask if you can just add in over your salary level ..I dont earn anywhere near 40k. Do HMRC just handle it or do you have to inform them you are going over that years allowance using previous years?

No you are limited to your relevant earnings for the tax year. If you earn over £40k then you can contribute more and don't have to tell HMRC but have to ensure you have the evidence to show you are complaint if they ask.

Ty..So because I dont earn 40k+..previous years count for nothing in my circumstance and i cant put in more than my current gross salary if not maxed out the the previous 3?

It's got nothing to do with earning £40k+ It's because there's an another limit, nothing to do with the annual allowance, which says you can only get tax relief on contributions up to 100% of your earnings (or £3600 if more).

So for instance, if you earn £32,000, and you contribute £2000 to your employer's scheme, you can only get tax relief on further contributions of £30,000 gross, so you could pay in £24,000 net to a SIPP and get £6,000 tax relief added making £30k.

If you really wanted to, it is legal to pay in more provided you tell the provider not to claim tax relief on the excess. But most providers won't accept contributions on that basis, as it's a hassle for them.

The annual allowance is a totally separate limit to the tax relief limit, with different rules like accounting for employer contributions (or deemed increase in pension value if a DB scheme) and allowing carry forwards. The AA is an additional constraint which generally affects higher earners. Low earners who stick within the tax relief limit don't usually have to worry about the AA because they get nowhere near it. Ignore rubbish that often gets posted like "you can't use carry forwards if you earn under £40k", someone in a generous public sector DB scheme could easily make use of carry forwards on a salary of £30k+ sticking within the tax relief limit.

Barry_Bear

Sorry I still cannot see where my working illustration is wrong.

I thought that you had to "fill" the £40,000 annual allowances in a strict order: first the current tax year, then 3rd previous year, 2nd previous year, finally previous year. 

So starting in 2020/21 if 2017/18 is already full (from prior years contributions) in 2020/21 you want to pay in £50,000 so you would allocate it as follows:

tax year 2017/18 - already full

tax year 2018/19 - £10,000 paid 2020/21

tax year 2019/20 -

tax year 2020/21 - £40,000 paid 2020/21

Then in 2021/22 if you wanted to pay in £70,000 you have to use all the current year first (2021/22) for £40,000, then allocate the remaining £30,000 to any unused allowance starting with the 3rd prior year (2018/19) as follows:

2018/19 - £30,000 paid 2021/22 (now full £10,000 paid in 2020/21)

2019/20 -

2020/21 - full (£40,000 paid 2020/21)

2021/22 - £40,000 paid 2021/22

Is this not correct?