Pension allowance carry forward

norrisg24

During 2020 i took redundancy, paid some of it into my employer pension and knowingly exceeded my 40k annual allowance.

My intention was/is to use some unused annual allowance from the last 3 years - of which i have ample. Ive now received a statement from the provider confirming i exceeded and that i have unused allowance.

The letter isnt overly clear but seems to suggest i 'may' have to pay tax and that its up to me to declare it to hmrc.

My question is, how do i bring into play my unused allowance to mop this excess up? Do i need to notify the provider, hmrc? Or do i do nothing because i have considered my position and have understood i dont have anything to due to declare?

Thanks in advance

CloesUnc

A very interesting post. I would be interested in peoples' views on this too.

For what it's worth, I think I have about £30k's worth of carry over to use this year. My approach has been to gather the documents that show my pension contributions over the last three years, in other words pensions statements. You should be able to get a rough estimate of your annual TOTAL pension contributions (including employer) for each of the last three years or so.

DC pension contributions (SIPP, or money purchase pensions) are quite easy to work out in terms of contributions to the £40k limit.

DB pensions are different, as they usually work on multiple times of the annual accrual. For example the Civil Service uses a multiplier of 16 times the annual accrual. Others might use 20 times. You would have to check with the documentation for your employer's scheme.

I don't think you have to send any of this to HMRC, only if they ask. But I could be wrong. It would be good to have it "ready to go" though, as I have.

hugheskevi

norrisg24 said:

The letter isnt overly clear but seems to suggest i 'may' have to pay tax and that its up to me to declare it to hmrc.

My question is, how do i bring into play my unused allowance to mop this excess up? Do i need to notify the provider, hmrc? Or do i do nothing because i have considered my position and have understood i dont have anything to due to declare?

Your obligation is to calculate whether you have a tax charge to pay or not.

If you conclude you have a tax charge to pay you must complete self-assessment and pay the charge. If you conclude there is no tax charge to pay due that is the end of the process, you do not need to notify anyone. Just keep all the paperwork and your calculations in case HMRC ask any questions in future (which is very unlikely if you are correct that there is no charge to pay).

DB pensions are different, as they usually work on multiple times of the annual accrual. For example the Civil Service uses a multiplier of 16 times the annual accrual. Others might use 20 times. You would have to check with the documentation for your employer's scheme.

All DB pensions use 16 for Annual Allowance and factor 20 for Lifetime Allowance, as mandated by HMRC.

CloesUnc

hugheskevi said:

norrisg24 said:

The letter isnt overly clear but seems to suggest i 'may' have to pay tax and that its up to me to declare it to hmrc.

My question is, how do i bring into play my unused allowance to mop this excess up? Do i need to notify the provider, hmrc? Or do i do nothing because i have considered my position and have understood i dont have anything to due to declare?

Your obligation is to calculate whether you have a tax charge to pay or not.

If you conclude you have a tax charge to pay you must complete self-assessment and pay the charge. If you conclude there is no tax charge to pay due that is the end of the process, you do not need to notify anyone. Just keep all the paperwork and your calculations in case HMRC ask any questions in future (which is very unlikely if you are correct that there is no charge to pay).

DB pensions are different, as they usually work on multiple times of the annual accrual. For example the Civil Service uses a multiplier of 16 times the annual accrual. Others might use 20 times. You would have to check with the documentation for your employer's scheme.

All DB pensions use 16 for Annual Allowance and factor 20 for Lifetime Allowance, as mandated by HMRC.

Thanks for clarifying that hugheskevi. Much appreciated.

norrisg24

Thanks for the reply.

I can evidence my remaining allowance and after review conclude no tax to pay, so can end the process by the sound of it. (Would have been perfect if aviva would have added that as an faq).

Albermarle

norrisg24 said:

Thanks for the reply.

I can evidence my remaining allowance and after review conclude no tax to pay, so can end the process by the sound of it. (Would have been perfect if aviva would have added that as an faq).

I think most pension providers send out an automatic warning if you it looks like you will exceed the £40K . You can just ignore it in this case. 

MX5huggy

Did you earn enough in the tax year which you paid the pension contribution to cover the contribution. Because it doesn’t matter if you have £100k of unused allowance if your earnings in that year were £30000, that’s all you can pay in. (I don’t know if a redundancy payment counts as earnings). 

Albermarle

MX5huggy said:

Did you earn enough in the tax year which you paid the pension contribution to cover the contribution. Because it doesn’t matter if you have £100k of unused allowance if your earnings in that year were £30000, that’s all you can pay in. (I don’t know if a redundancy payment counts as earnings). 

The first £30K of a redundancy payment is not taxable, so does not count as taxable earnings in relation to pension contributions . Anything above £30K is taxable and therefore tax relief can be claimed on pension contributions.
Also payments like holiday pay , salary in leu of notice etc are all taxable as well. 
Plus of course you can add any salary earned up until the redundancy that tax year.

dunstonh

During 2020 i took redundancy, paid some of it into my employer pension and knowingly exceeded my 40k annual allowance.

Was the redundancy paid into the pension as an employer contribution or an employee contribution?  
The latter could cause problems whereas there would be less with the former.   An employee contribution requires you to have the income to support it.  An employer contribution does not.  

it is normally recommended that you get the employer to pay it into the pension rather than to pay it to you first.

My intention was/is to use some unused annual allowance from the last 3 years - of which i have ample. Ive now received a statement from the provider confirming i exceeded and that i have unused allowance.

What is the exact breach?
Providers do not normally question the contribution level as they have no way of knowing what unused allowance is available.  The exception is if you exceed £160,000 or you have disclosed your salary as being under £40k and have paid a contribution greater than 40k.

I can evidence my remaining allowance and after review conclude no tax to pay, so can end the process by the sound of it. (Would have been perfect if aviva would have added that as an faq).

Did you have sufficient earned income to cover the total contribution made? 
e.g. if you paid in £80k gross contributions in that tax year, did you earn at least £80k?

If you earn less than £40k in the tax year then you cannot use carry forward for employee contributions.  you can for employer contributions.

Are you working on net contribution basis or gross contribution basis?  (some people have been known to work on net and exceed allowances by doing so).

DT2001

I agree with Hugheskevi that it is very much up to you. In 2015 I had a bonus on sale of a business which went into a pension fund and then George Osborne tweaked the pension input dates so I could get an extra amount in. The total utilised 4 years allowances (3 carried forward) and some extra from the realignment of dates and I didn’t get asked any questions by HMRC.

I assume your provider sends a standard letter as you may have more than one pension being paid into and so tax could be due.

norrisg24

In may 2020 i received my package. 

Total earnings (inc car allowance, holidays, severence non taxable) was 71k, of which 2.7k car, 2.3k holiday, 15.8k inlieu of notice, 30k non taxable, taxable severance 20k.
Additional to this was Pension contribution was paid in employer contribution and totalled 52k for tax year to april 21.

Provider suggests 12k over 40k allowance.

Not sure how much on the above is counted as earnings for tax year 20/21?? I did start new work and earnt £10.5k, up april 21.

So, did i earn over 40k to be able to claim the carry forward please??