Pension allowance carry forward

dunstonh

Provider suggests 12k over 40k allowance.
<snip>
Additional to this was Pension contribution was paid in employer contribution and totalled 52k for tax year to april 21.

Did you make any employee contributions?

Employer contributions can go through the £40k and use carry forward even if you dont earn over £40k.

So, I am wondering why the provider has said you have breached the £40k annual allowance when the contributions were employer and not employee.

Albermarle

dunstonh said:

Provider suggests 12k over 40k allowance.
<snip>
Additional to this was Pension contribution was paid in employer contribution and totalled 52k for tax year to april 21.

Did you make any employee contributions?

Employer contributions can go through the £40k and use carry forward even if you dont earn over £40k.

So, I am wondering why the provider has said you have breached the £40k annual allowance when the contributions were employer and not employee.

I understood from the OP 's post , that the £52K just included some employer contributions , but the rest were employee contributions .

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.

I read from this that their taxable income was £41K + They had a new job and earned £10.5K in addition
So the maximum they could contribute to a pension would be £41.2 K ( then tax relief added to give £51.5 K Gross) 

Then an unknown amount of employer contributions on top.

zagfles

norrisg24 said:

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??

Yes you're fine. Ignore the rubbish about having to earn over £40k to use carry forwards, it's not true. There is a separate limit on tax relief, nothing to do with the annual allowance, but this only an issue if the scheme is a RAS (relief at source) scheme, ie one which claims the tax relief direct from HMRC, and you paid in more than you earned. Earnings include the taxable part of redundancy, but not the tax free part.

If the contributions were made before tax was applied, ie either employer contributions or "net pay" employee contributions, you don't need to worry about this.

andrew_12345

Having just been through something similar - both the employer and employee contribution count towards the £40K pa.
So for example, if your employer and you contributed 20k each then that is your maximum for that year.

In theory your total contributions across the three **previous** years should not exceed £120k. So add up your total contributions over the previous three years (yours and your employer) and if this is less than 120k, then you have the difference in carry over.

This all assumes that your not affected by the taper which complicates things horribly.

norrisg24

Appreciate the comments.

The prev 3 years i have 68k unused. Taxable earnings 20\21 around 51.5k. Total contributions same year 52.3k of which all but £800 was employer (i left v close to tax year end). 

From what youve said i wont do anything, ive earnt roughly the same as contributions, and have carry forward to use....

zagfles

norrisg24 said:

Appreciate the comments.

The prev 3 years i have 68k unused. Taxable earnings 20\21 around 51.5k. Total contributions same year 52.3k of which all but £800 was employer (i left v close to tax year end). 

From what youve said i wont do anything, ive earnt roughly the same as contributions, and have carry forward to use....

Yes you're fine, well within the limits. You don't need to do anything. Just keep a record of your pension input amounts (which should be on pension statements) for the last few years in case HMRC query it, but they're unlikely to.

This assumes you aren't subject to the MPAA ie you've previously flexibly accessed a pension (google "MPAA triggers" if you think this might apply).

doodling

Hi,

For those who are questioning why the provider sent the letter, it is my understanding that all pension providers are required to issue a "pension savings statement" if the contributions (or growth in benefits for DB schemes) exceed the Annual Allowance.

I don't believe that the regulations distinguish between employer and employee contributions in this instance.

As others have said, you don't need to take action just because you've been sent one. Only if you can't carry forward unused annual allowance do you need to think about declaring things to HMRC.

Linton

norrisg24 said:

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??

The £30K non taxable severance is not part of your "earned income" for pension contribution purposes.  The other items are.  Then you add in the £10.5K you earned from your new job, so that would make your earned income about £52K.  

However you say there was a £52K employer pension contribution (and there were no personal contributions?) so that does not count against your earned income.  The only relevent limit is the £40K Annual Allowance.  The pension company is correct in telling you that the total contributions into your pension are £12K above the limit, purely as information.

You are allowed to carry Annual Allowance forward from the 3 previous tax years.  Assuming you have enough to cover the £12K you dont need to do anything and dont need to inform HMRC or anyone else.  Should HMRC raise the issue you can point out that you benefit from carry over.

If my understanding of your situation is correct you probably could also have made significant personal contributions last tax year.

norrisg24

Appreciate all the comments, as look would have it i received an tax statement today.

It confirms taxable income at 52k, so i believe there is nothing to do regards the pension. Even better though they owe me 8k!!! Tbh when i did my own calculations last year i did think this was the case, but was letting their systems and year end take its course without stirring the pot (just in case)

Overall im very happy with the severence , i cut the strings with a long standing employer by way of handsome pay off, managed the tax very well, and im not far off accessing the pension anyway. Fortunate to have a new job, easier and less hassle than the old one but all the trappings of the alpha scheme! Plus i feel like i can sack it anytime i fancy (mortgage free). Very lucky.

What a difference 48 hours makes potential tax bill to tax refund!!