Carry-forward rules for pension contributions

europa

I have ca. 26k gross earnings this year. Last three years i had 20k total: 4k (19/20), 8k and 8k. As i have made zero pension contributions over the past years, i originally thought i could contribute 26k+20k=46k this year (and gain tax relief on the entire amount). However, i am now unsure whether i can get the tax relief on the extra 20k as i think you have to first use up the entire 40k allowance in the current tax year before you can carry forward from previous years. In my case, i can't use up my 40k allowance as my earnings are only 26k. Is my reasoning correct? 
TIA

Marcon

europa said:

I have ca. 26k gross earnings this year. Last three years i had 20k total: 4k (19/20), 8k and 8k. As i have made zero pension contributions over the past years, i originally thought i could contribute 26k+20k=46k this year (and gain tax relief on the entire amount). However, i am now unsure whether i can get the tax relief on the extra 20k as i think you have to first use up the entire 40k allowance in the current tax year before you can carry forward from previous years. In my case, i can't use up my 40k allowance as my earnings are only 26k. Is my reasoning correct? 
TIA

See https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/carry-forward

jamesd

You can contribute up to gross 26k this year. There is no carry-forward of pay.

You also need to be within the annual allowance limit of 40k. That does allow carry-forward but it can't help you because pay is less than 40k.

Albermarle

Most you can add is £26K gross , which means  £20, 800 from you and £5200 in basic rate tax relief from the provider.

europa

Thanks, all. I did see the pensionsadvisoryservice note, but i struggled to understand it. I guess the confusion comes from my previous accountant telling me that, in addition to my (26k) earnings this year, i can ALSO contribute up to my (20k) earnings from the past three years. Clearly he was mistaken.  

Dazed_and_C0nfused

Why did you have an accountant?

If it was because you are a director or a limited company then you may be getting confused between what you (the individual) and what your employer (the company) can contribute.

dunstonh

 I guess the confusion comes from my previous accountant telling me that

Accountants are often out of date when it comes to pension information.  However, if you were a company director then the carry forward is available to you even if you dont earn £40k salary.

europa

dunstonh said:

 I guess the confusion comes from my previous accountant telling me that

Accountants are often out of date when it comes to pension information.  However, if you were a company director then the carry forward is available to you even if you dont earn £40k salary.

Yes, i was previously a company director. The company is now in liquidation; however, the previous years' earnings i spoke about (4, 8 and 8k) were taken as a salary from my own company. So how exactly does that affect the ability to carry forward earnings ?

dunstonh

europa said:

dunstonh said:

 I guess the confusion comes from my previous accountant telling me that

Accountants are often out of date when it comes to pension information.  However, if you were a company director then the carry forward is available to you even if you dont earn £40k salary.

Yes, i was previously a company director. The company is now in liquidation; however, the previous years' earnings i spoke about (4, 8 and 8k) were taken as a salary from my own company. So how exactly does that affect the ability to carry forward earnings ?

Pension contributions from the company are classed as employer contributions. They are not affected by salary levels and can to £40k and use carry forward where it is available.

europa

dunstonh said:

Pension contributions from the company are classed as employer contributions. They are not affected by salary levels and can to £40k and use carry forward where it is available.

Okay, but my LTD is now closed and i cannot therefore make employer contributions. The only question is whether the fact my previous earnings (4+8+8k) were from my old LTD makes any difference to my situation now (in terms of carry forward rules). Is 26k still the max i can contribute (with tax relief) this year? 

zagfles

europa said:

dunstonh said:

Pension contributions from the company are classed as employer contributions. They are not affected by salary levels and can to £40k and use carry forward where it is available.

Okay, but my LTD is now closed and i cannot therefore make employer contributions. The only question is whether the fact my previous earnings (4+8+8k) were from my old LTD makes any difference to my situation now (in terms of carry forward rules).

No. Your earnings in previous years are totally irrelavent. You can't carry forwards earnings from previous years. You can only get personal tax relief on this year's earnings, that's been the case for about 15 years.

This is constantly confused with annual allowance carry forwards. You need to understand that the tax relief limit on personal contributions and the annual allowance are 2 totally different and separate things. It's discussed every week here, have a search.