Pension Carry Over

T_cambs

Hi all.
I moved back to the UK in October 2017 after a period of working abroad.  I joined my employers DC pension scheme in December 2017. Would I be right in thinking that I have the balance to the full 40k allowance available to me as carry over this year (despite the fact i was only in the pension for 4 months of the tax year)?

In the below example, assuming i was below the adjusted income limit for each year and my taxable income is greater than 94k this year, does it mean I could save into my employer pension as normal and top up (up to max of 94k total) into a SIPP with 20% being added from government and 20% claimed as extra tax relief via self assessment?


Many thanks for your help.

AlanP_2

I think the answer is yes, as I don't belive the AA is applied pro-rata depending on how much of the tax year you worked for - at least it isn't on the "leaving" end of the continuum and becoming unemployed / retired. 

Dazed_and_C0nfused

I will let someone more knowledgeable comment on the carry forward rules but two points you should note.

It is 25% that gets added.

There is no set extra 20%.  The gross contribution increases the amount of your basic rate tax band so say you contribute £74k (gross) it would increase from £37,000 to £111,000.

But let's say you have paid higher rate tax on £45,000.  The increased basic rate band means that £45,000 is taxed at 20% rather than 40%.  A personal tax savings of £9,000.  Not £14,800 (20% of £74,000)

HappyHarry

In theory, you could have made a £40,000 contribution on 5th April 2018. So yes, you can carry forward the full unused allowance from 2017/18. 

As long as you could have invested in a pension that tax year, you have the full allowance available. 

HappyHarry

Just a quick thought, the tapered annual allowance applies to higher earners which reduces the amount they can contribute to a pension. This was brought in in April 2016. You say you earn over £94,000 but not how much over. If your earnings were high in previous years, you may not have the full £40,000 allowance available to carry forward.

T_cambs

HappyHarry said:

Just a quick thought, the tapered annual allowance applies to higher earners which reduces the amount they can contribute to a pension. This was brought in in April 2016. You say you earn over £94,000 but not how much over. If your earnings were high in previous years, you may not have the full £40,000 allowance available to carry forward.

Many thanks! Ball park as follows: so i calculate it is below the adjusted income threshold at which the allowance tapers?

HappyHarry

T_cambs said:

HappyHarry said:

Just a quick thought, the tapered annual allowance applies to higher earners which reduces the amount they can contribute to a pension. This was brought in in April 2016. You say you earn over £94,000 but not how much over. If your earnings were high in previous years, you may not have the full £40,000 allowance available to carry forward.

Many thanks! Ball park as follows: so i calculate it is below the adjusted income threshold at which the allowance tapers?

That looks fine. Based on those figures, you would have the full £40,000 available for each tax year.