`Carry forward` contributions from previous 3 tax years

Joey2013

Hi,
I am a new member and this is my first post. My question is in regards to carry forward rules to pay into pensions using last 3 tax years unused allowances. I have £14,038 gross allowances to carry forward, but have no `relevant earnings` in this current tax year(2020/21) as I live off rental income from property. My question is can I carry forward my unused allowance of £14,038 gross from the previous 3 tax years where I did have `relevant earnings` and receive tax relief, even though I do not have any relevant earnings in this current tax year(2020/21).
Any help and advice would be greatly appreciated.
Thank you all.

Albermarle

Joey2013 said:

Hi,
I am a new member and this is my first post. My question is in regards to carry forward rules to pay into pensions using last 3 tax years unused allowances. I have £14,038 gross allowances to carry forward, but have no `relevant earnings` in this current tax year(2020/21) as I live off rental income from property. My question is can I carry forward my unused allowance of £14,038 gross from the previous 3 tax years where I did have `relevant earnings` and receive tax relief, even though I do not have any relevant earnings in this current tax year(2020/21).
Any help and advice would be greatly appreciated.
Thank you all.

If you scroll through the forum you will see this same, or very similar question is asked a few times every week.
If you have no relevant earnings this tax year the maximum you can contribute to a pension is £2880 ( and £720 will be added as tax relief)  
My question is can I carry forward my unused allowance of £14,038 gross from the previous 3 tax years where I did have `relevant earnings` and receive tax relief, 
No

bowlhead99

No. 
The two things are entirely separate limits.

1) If you have relevant earnings this year, the amount of those relevant earnings you can put into a pension are limited by (a) your lifetime allowance, and (b) your annual allowance and any unused annual allowance that you brought forward from previous years.

2) If you have annual allowance this year (or brought forward), the amount of it that you can use up will be limited by your relevant earnings.

For (2), there is a lower 'floor' to earnings, where if you have less than £3600 of gross relevant earnings, you are still allowed to put £3600 (gross) into a pension by making a net £2880 contribution and the pension provider will claim tax relief from HMRC to top it up to £3600 (the difference of £720 being 20% of the 3600).  You can get that basic rate tax relief grossup on a small contribution even if you don't have any relevant earnings or pay any tax.

But what you can't do is carry forward 'relevant earnings' from previous years to make bigger contributions now.  Only annual allowance can be carried forward; relevant earnings can't be.

Joey2013

Thank you Albermarle and bowlhead99. I think I might understand now. It's not the relevant earnings that are carried forward, but the unused annual allowances. So that means I need to have earnings over £40,000 in the current tax year to be able to use this year's allowance and carry forward some of the unused allowance from previous 3years. Is my understanding correct or am I barking up the wrong tree.
Thank you all again and am looking forward to comments.

Albermarle

Joey2013 said:

Thank you Albermarle and bowlhead99. I think I might understand now. It's not the relevant earnings that are carried forward, but the unused annual allowances. So that means I need to have earnings over £40,000 in the current tax year to be able to use this year's allowance and carry forward some of the unused allowance from previous 3years. Is my understanding correct or am I barking up the wrong tree.
Thank you all again and am looking forward to comments.

Yes , you have got the concept . Only one point for future reference is that the £40K annual allowance includes your contribution , any tax relief and your employers contribution if relevant. 

dunstonh

So that means I need to have earnings over £40,000 in the current tax year to be able to use this year's allowance and carry forward some of the unused allowance from previous 3years. 

Or employer contributions. e.g. if you were a company director of a company.

Joey2013

Thank You all again. Unfortunately I am not a director and nor am I employed at the moment. 

Dazed_and_C0nfused

If you are ever in a position to use carry forward the other thing to be aware of is that any tax relief due is based on the tax year the contribution is made in, not the tax year(s) the carry forward originates from.

aroominyork

Joey2013 said:

Thank you Albermarle and bowlhead99. I think I might understand now. It's not the relevant earnings that are carried forward, but the unused annual allowances. So that means I need to have earnings over £40,000 in the current tax year to be able to use this year's allowance and carry forward some of the unused allowance from previous 3years. Is my understanding correct or am I barking up the wrong tree.
Thank you all again and am looking forward to comments.

I think we might be getting confused here. OP does not have to earn over £40k this year to carry forward previous years' allowances. If s/he has £14,038 carried into this year from the previous three years, s/he can carry forward the unused allowance from the most recent two of those plus any of the unused £40k from this year. For example, the £14,038 is made up of:
- £5,000 from 2017-18
- £4,000 from 2018-19
- £5,038 from 2019-20.

Next year, 2021-22 s/he can carry forward the £4,000 and £5,038 plus any part of the £40,000 from 2020-21 which s/he does not use. All that is lost is the 2017-18 unused allowance as that will be from more than three years ago.

Albermarle

OK but it is a bit theoretical as she has no earnings this tax year .So  max she can contribute is £2880 anyway as a non earner.

milton1970

For clarify - my understanding is that you utilise the current year allowance first before looking at any prior year c/fwd allowances available.

Upper Limit is in year relevant earnings & lower limit is £3600 

correct ?