Rule around maximun contributions over 3 years backdated

JackSprout

I have not paid into my pension for years until July just gone, when I paid 40K in. I plan on putting another 40K in by April 2022, so 80k in total.

Not sure how much I can put in during tax year 2022 to 2023 is it 40K to top off the 120k or 80k to top off the 40k and then 40k going forward?

Albermarle

Whatever allowance you have built up from previous years , you are limited by your taxable earnings this year as to how much you can can contribute this tax year . So to get an accurate answer you need to tell us , what your taxable earnings are likely to be this tax year ?
Or if you are contributing via a business , what their taxable profits will be ?

JackSprout

So profits from Busnines should be in the region of 100k to 120k a year.

zagfles

Were you a member of a pension scheme in previous years? You can only carry forwards from those years if you were.

If you have very high earnings (6 figures) or have flexibly accessed pensions you might have a lower AA. (google AA taper or MPAA triggers)

Otherwise it's £120k next tax year. This year you'll use this year's allowance plus 2018/19's, next year you could use up next year's allowance plus 2019/20's and 2020/21's. Assuming you paid in nothing (including any employer contributions) those years.

NOTE that you can only get personal tax relief on contributions up to 100% of your earnings (this is unrelated to the annual allowance, it's a separate limit). So if you're paying them as personal contributions (as opposed to eg from a one man band ltd company as an employer contributions), you need to make sure you're not getting tax relief on more than your taxable earnings. (earnings being stuff like employment/self employment income, not dividends, pensions, other unearned income etc)

JackSprout

Would this work:

2018/19 Allowance paid July 31st (Business end of year) 2021
2019/20 Allowance paid by April 5th 2022
2020/21 Allowance paid by July 31st 2022
2021/22 Allowance paid by December but before April 5th 2022

Then from 2022 I will pay any access into my Wifes pension, I will probably stop paying into mine as I will hit the 1 million to soon.

However my wife has a good work pension so we are maximising how much we put into that to keep her under the 40% braket.

So I may have to think of other tax effcient things to do with the profits.

zagfles

JackSprout said:

Would this work:

2018/19 Allowance paid July 31st (Business end of year) 2021
2019/20 Allowance paid by April 5th 2022
2020/21 Allowance paid by July 31st 2022
2021/22 Allowance paid by December but before April 5th 2022

Then from 2022 I will pay any access into my Wifes pension, I will probably stop paying into mine as I will hit the 1 million to soon.

However my wife has a good work pension so we are maximising how much we put into that to keep her under the 40% braket.

So I may have to think of other tax effcient things to do with the profits.

You always use current year allowance first, then any carry forwards from the last 3 tax years starting with the earliest. So pay in £40k this year, it will use this year's allowance. Another £40k this year it'll use 2018/19. Next tax year first £40k will use 2022/23 allowance, then next £40k will use 2019/20 etc.

If these are all employer contributions eg from a one man band ltd company then you don't need to worry about the personal tax relief limit, as you won't be getting tax relief claimed by the SIPP, but talk to your accountant to make sure they are allowable and corp tax efficient. And obviously make sure the SIPP know that they're employer contributions - they shouldn't claim tax relief from HMRC.

dunstonh

JackSprout said:

So profits from Busnines should be in the region of 100k to 120k a year.

Is this a limited company or self employed/partnership? - the rules differ for each.

Limited company employer contributions are not limited by salary.   So, you can get the full £40k a year and use carry forward for the 3 years irrespective of what your salary is.  Self employment/partnership does not get employer contributions but employee contributions and are limited by your net profit.

If a limited company and the contribution would be more than your gross profit, then you need to speak to your accountant to see if any shifting of losses could take place.  If not, you can always defer the remainder of the contribution to the next tax year.

SomeMadeUpName

dunstonh said:

If a limited company and the contribution would be more than your gross profit, then you need to speak to your accountant to see if any shifting of losses could take place.  If not, you can always defer the remainder of the contribution to the next tax year.

Hi, your comment above set  me wondering what the rules are you refer to here.  A quick Google didn't help.  I was hoping you could expand a little on this area, or point me at some web reference material.  Interesting you make a point of saying gross (as opposed to net) profit.

Thx for any info.

dunstonh

Hi, your comment above set  me wondering what the rules are your refer to here.  A quick Google didn't help.  I was hoping you could expand a little on this area, or point me at some web reference material.  Interesting you make a point of saying gross (as opposed to net) profit.

For limited companies, pension contributions are a business expense. They are taken into account before tax.   So, if you do an employer contribution of say £40k then your expenses increase by £40k and your profit before tax is reduced by £40k.  Therefore reducing your corporation tax bill.

SomeMadeUpName

SomeMadeUpName said:

dunstonh said:

If a limited company and the contribution would be more than your gross profit, then you need to speak to your accountant to see if any shifting of losses could take place.  If not, you can always defer the remainder of the contribution to the next tax year.

Hi, your comment above set  me wondering what the rules are you refer to here.  A quick Google didn't help.  I was hoping you could expand a little on this area, or point me at some web reference material.  Interesting you make a point of saying gross (as opposed to net) profit.

Thx for any info.

Found some reference material on HMRC (PTM043000) and it makes useful reading, but still not sure what you refer to in regard to employer pension contributions being in excess of gross profit.

dunstonh

SomeMadeUpName said:

SomeMadeUpName said:

dunstonh said:

If a limited company and the contribution would be more than your gross profit, then you need to speak to your accountant to see if any shifting of losses could take place.  If not, you can always defer the remainder of the contribution to the next tax year.

Hi, your comment above set  me wondering what the rules are you refer to here.  A quick Google didn't help.  I was hoping you could expand a little on this area, or point me at some web reference material.  Interesting you make a point of saying gross (as opposed to net) profit.

Thx for any info.

Found some reference material on HMRC (PTM043000) and it makes useful reading, but still not sure what you refer to in regard to employer pension contributions being in excess of gross profit.

If you don't have the profit to cover all of the contributions, then you won't be reducing your corporation tax bill on the amount in excess of the gross profit.     So, if your gross profit is £30k, then usually, it's not worth making a contribution of £40k (even though you can).  However, the accountant may be able to shift profit/loss between years.