WHAT IS THE MAXIMUM I CAN PAY INTO PENSION TO OFFSET TAX IN 2021/22

dunstonh

Paying £35,000 which will mean getting £43,750 into the PRU SIPP 

<Semantics mode on>  Pru don't do a SIPP.   <Semantics mode off>

Basically, with earnings over £160k but less than £200k, then the maximum pension contribution is £160,000 minus the total pension contributions made in the current year and the three previous years.  
If total earnings exceed £200k then further calculations are needed to see whether the pension allowances are subject to tapering.   This also applies to income in earlier years but the threshold income limit was lower in some of those.  So, you also need to know the total income (all sources) for the previous three years as well as current.

When working out pension contributions and finding limits, always look at the gross contribution.  Not the net contribution.  

billywhizz1966

MANY THANKS

IT IS A PENSION RETIREMENT ACCOUNT (SORRY IF NOT SAME AS SIPP)  

Basically, with earnings over £160k but less than £200k, then the maximum pension contribution is £160,000 minus the total pension contributions made in the current year and the three previous years.  
If total earnings exceed £200k then further calculations are needed to see whether the pension allowances are subject to tapering.   This also applies to income in earlier years but the threshold income limit was lower in some of those.  So, you also need to know the total income (all sources) for the previous three years as well as current.

When working out pension contributions and finding limits, always look at the gross contribution.  Not the net contribution.  

OH EARNED CIRCA £80K P.A SO DONT THINK THOSE THRESHOLDS APPLY OVER £110K AND 200K APPLY. THIS YEAR HAS OBVIOUSLY BEEN A BUMPER YEAR BUT ONLY BECAUSE OF REDUNDANCY. I HAVE GONE ONTO GOV.UK WEBSITE TO LOOK AT MEANING OF ADJUSTED NET INCOME AND USED THEIR CALCULATORS AND READ WHAT LOOKS THE RELEAVNT BITS AND THESE SUGGEST SHE HAS A REMAINING ANNUAL ALLWANCE OF CIRCS £5.5K BUT AS I SAY I THINK I AM JUST CONFUSING MYSELF NOW  SO WILL JUST FILL IN SELF ASSESSMENT IN APRIL AND SEE WHAT HAPPENS !!!!  

hugheskevi

billywhizz1966 said:

Only other contribution in 2021/22 was taken at source in final pay (LGPS plus a hefty AVC payment in April only) all deducted at source). The advice from Pension Admin was £4908.94 had been used of the annual allowance  

Are you sure the £4,908.94 pension input includes both the normal accrual in LGPS and also the AVC? Particularly as you say there was a 'fairly hefty' AVC payment - yet if the total input is under £5,000 the AVC contribution couldn't have been more than a few thousand or so?

Assuming that £4,908.94 is the correct figure, then it seems (largely by coincidence possibly!) your wife has arrived at a good place:

Annual Allowance available:£40,000

Carry-forward available: £8889.47

Total available pension input for 2021/22: £48,889.47

Already used: £4,908.94 + (£35,000 / 0.8) = £48,658.94

So there is almost no headroom left for any further contributions without breaching the Annual Allowance.

However, it may be advantageous to breach Annual Allowance to the extent that Adjusted Income is reduced to £100,000. That gets you tax relief at an effective rate of 60% due to the Personal Allowance taper, but the Annual Allowance charge is 40% as an Annual Allowance charge doesn't affect Personal Allowance. If a basic rate taxpayer from April 2022 and no Lifetime Allowance issues, this may well have a net overall financial gain. But it may also be more trouble than it is worth for a fairly small gain.

billywhizz1966

hugheskevi said:

billywhizz1966 said:

Only other contribution in 2021/22 was taken at source in final pay (LGPS plus a hefty AVC payment in April only) all deducted at source). The advice from Pension Admin was £4908.94 had been used of the annual allowance  

Are you sure the £4,908.94 pension input includes both the normal accrual in LGPS and also the AVC? Particularly as you say there was a 'fairly hefty' AVC payment - yet if the total input is under £5,000 the AVC contribution couldn't have been more than a few thousand or so?

Assuming that £4,908.94 is the correct figure, then it seems (largely by coincidence possibly!) your wife has arrived at a good place:

Annual Allowance available:£40,000

Carry-forward available: £8889.47

Total available pension input for 2021/22: £48,889.47

Already used: £4,908.94 + (£35,000 / 0.8) = £48,658.94

That's great and yes that is correct as it was supplied by the Pension Input amount was provided by the County Council itself.  It was just for 23 days and was about 80% of her salary and no other contribution was made until the cheque was paid to the Pru on Friday

One last question if I may, when filling in tax return what figure will I use to say how much was paid into her pension so I can determine what HMRC will owe her back from the tax she has already paid   ?

Many Thanks for your help and assistance

hugheskevi

billywhizz1966 said:

One last question if I may, when filling in tax return what figure will I use to say how much was paid into her pension so I can determine what HMRC will owe her back from the tax she has already paid   ?

Depends whether you are entering figures for income tax purposes or pension input (Annual Allowance) purposes.

Use gross figures throughout. For pension input purposes you appear not to have to enter anything as the limit has not been exceeded. For income tax purposes, only include own contributions, not employer. That is £35,0000 / 0.8 = £43,750 for the Pru contribution, and an unknown amount for the LGPS/AVC contribution as we only know the pension input which is irrelevant for this purpose - it is the member contribution which matters for income tax.

Dazed_and_C0nfused

Normal "net pay" contribution don't go an a tax return as they have already had the maximum possible tax relief due.

The gross amount of the "relief at source" contributions do get included on the tax return.

The AVC payment will depend on the method used to contribute.  If it was net pay it doesn't go on the return.  But occasionally there can be gross contributions to schemes like LGPS, NHS, civil service etc, which don't go through payroll (net pay) and don't get any tax relief whatsoever when paid.  These do go the tax return but in a separate box to the relief at source contributions.

You can look at the tax return (SA100) for 2020:21 on gov.uk, the 2021:22 return is unlikely to be much different re pension contributions as the tax relief process hasn't changed.

billywhizz1966

hugheskevi said:

billywhizz1966 said:

One last question if I may, when filling in tax return what figure will I use to say how much was paid into her pension so I can determine what HMRC will owe her back from the tax she has already paid   ?

Depends whether you are entering figures for income tax purposes or pension input (Annual Allowance) purposes.

Use gross figures throughout. For pension input purposes you appear not to have to enter anything as the limit has not been exceeded. For income tax purposes, only include own contributions, not employer. That is £35,0000 / 0.8 = £43,750 for the Pru contribution, and an unknown amount for the LGPS/AVC contribution as we only know the pension input which is irrelevant for this purpose - it is the member contribution which matters for income tax.

That's brilliant. Her contribution has been £4500 on LGPS AVC although went through payroll so may not need to do based on Dazed and Confused comments and £35,000 direct so it will be most likely £35,000 to report to HMRC but will check before completing. Thanks for all your help 

billywhizz1966

Dazed_and_C0nfused said:

Normal "net pay" contribution don't go an a tax return as they have already had the maximum possible tax relief due.

The gross amount of the "relief at source" contributions do get included on the tax return.

The AVC payment will depend on the method used to contribute.  If it was net pay it doesn't go on the return.  But occasionally there can be gross contributions to schemes like LGPS, NHS, civil service etc, which don't go through payroll (net pay) and don't get any tax relief whatsoever when paid.  These do go the tax return but in a separate box to the relief at source contributions.

You can look at the tax return (SA100) for 2020:21 on gov.uk, the 2021:22 return is unlikely to be much different re pension contributions as the tax relief process hasn't changed.

Thank you for all your help, Really useful

Think I have got there in the end and now hopefully just the tax return to complete and wait on a big refund back from HMRC  

Dazed_and_C0nfused

One thing you may useful is to complete the return with everything except the pension contributions.

Then check the calculation (without submitting it to HMRC) and note the bottom line of tax due to be paid or due back.

Then add in the pension contributions and check the revised calculation. 

Comparing the original bottom line with the revised figure will show exactly how much personal income tax the pension contributions have saved.  On top of the basic rate tax relief the pension company will have added to the pension fund for that contribution.

NB.  Any personal tax saving benefits you, it is never added to the pension fund like the basic rate "relief at source" is.

billywhizz1966

Dazed_and_C0nfused said:

One thing you may useful is to complete the return with everything except the pension contributions.

Then check the calculation (without submitting it to HMRC) and note the bottom line of tax due to be paid or due back.

Then add in the pension contributions and check the revised calculation. 

Comparing the original bottom line with the revised figure will show exactly how much personal income tax the pension contributions have saved.  On top of the basic rate tax relief the pension company will have added to the pension fund for that contribution.

NB.  Any personal tax saving benefits you, it is never added to the pension fund like the basic rate "relief at source" is.

Many Thanks for all your help and advice. Nearly there and I all now ready to submit information early in the New Financial Year