Pension 40K limit per year

NorthernJoe

Pat38493 said:

Dazed_and_C0nfused said:

If it's one of the types that need declaring then you have to declare the contribution.

You don't have to explain anything about using carry forward but should retain your own workings in case HMRC ask any questions.

You would have to declare an annual allowance charge if you exceed the limits.

OK thanks and out of interest, is there any valid reason why someone would carry on paying in above their available allowance?

for example thinking about it, if I’m paying in through a salary sacrifice scheme, would I still avoid paying the NI on those contributions even though I will still have to pay the income tax?

Some people, particularly in DB schemes, have little or no choice as you can't always easily control pension growth in some of these schemes.

(It has been a big issues for doctors in the recent years)

Pat38493

NorthernJoe said:

Pat38493 said:

Dazed_and_C0nfused said:

If it's one of the types that need declaring then you have to declare the contribution.

You don't have to explain anything about using carry forward but should retain your own workings in case HMRC ask any questions.

You would have to declare an annual allowance charge if you exceed the limits.

OK thanks and out of interest, is there any valid reason why someone would carry on paying in above their available allowance?

for example thinking about it, if I’m paying in through a salary sacrifice scheme, would I still avoid paying the NI on those contributions even though I will still have to pay the income tax?

Some people, particularly in DB schemes, have little or no choice as you can't always easily control pension growth in some of these schemes.

(It has been a big issues for doctors in the recent years)

I was not really referring to the Lifetime allowance but more the question of why someone would pay more than the 40k annual tax free limit into their pension scheme. 

MX5huggy

Are you also aware of the tax relief limit? You can’t pay into a pension and receive tax relief in any year in excess of your salary. No matter how much AA you have left in that year or carried forward. 

hugheskevi

Pat38493 said:

out of interest, is there any valid reason why someone would carry on paying in above their available allowance?

for example thinking about it, if I’m paying in through a salary sacrifice scheme, would I still avoid paying the NI on those contributions even though I will still have to pay the income tax?

(1) In a Defined Benefit scheme - particularly final salary - and exceed Annual Allowance due to salary level/increase

(2) Inheritance tax considerations - pensions are outside inheritance tax

(3) Subject to Personal Allowance withdrawal at £100,000 - £125,000 of earnings, which sees a marginal tax rate of 60%. If the amount of contribution that exceeds Annual Allowance comes from this income, relief is received at 60% but the penalty applied at 40% as the excess Annual Allowance does not affect the Personal Allowance taper.

(4) Child Benefit taper - similar to above, someone may seek to avoid the High Income Child Benefit Tax Charge (eg earning £100,000 and putting £50,000 into pension).

(5) If salary sacrifice is available, and particularly if employer refunds the employer NI savings, the relief will be higher than the penalty and it may be optimal to exceed Allowance

(6) Subject to Money Purchase Annual Allowance, and standard contribution to employer scheme takes them above limit

It may well be a combination of these reasons people choose to rationally exceed Annual Allowance, but consideration also has to be given to Lifetime Allowance and income tax rate when pension is received so it is very much a case-by-case consideration.

Pat38493

hugheskevi said:

Pat38493 said:

out of interest, is there any valid reason why someone would carry on paying in above their available allowance?

for example thinking about it, if I’m paying in through a salary sacrifice scheme, would I still avoid paying the NI on those contributions even though I will still have to pay the income tax?

(3) Subject to Personal Allowance withdrawal at £100,000 - £125,000 of earnings, which sees a marginal tax rate of 60%. If the amount of contribution that exceeds Annual Allowance comes from this income, relief is received at 60% but the penalty applied at 40% as the excess Annual Allowance does not affect the Personal Allowance taper.

Interesting - I was wondering about this - so actually even if you are exceeding 40K limit it may make sense to pay the money into the pension rather than have it subject to effectively 60% tax.  Many thanks for this hint as this might be a position I'm in a few years from now.

Pat38493

MX5huggy said:

Are you also aware of the tax relief limit? You can’t pay into a pension and receive tax relief in any year in excess of your salary. No matter how much AA you have left in that year or carried forward. 

Yes thanks I am aware of that already (I learned that also on this forum so it's very helpful on here   )

I also learned that "salary" in this context cannot include income from a DB pension scheme.

Pat38493

Dazed_and_C0nfused said:

If it's one of the types that need declaring then you have to declare the contribution.

You don't have to explain anything about using carry forward but should retain your own workings in case HMRC ask any questions.

You would have to declare an annual allowance charge if you exceed the limits.

This is probably a bit of a pedantic point, but when calculation the annual pension allowance and carry forward available, if this is an DC employer SIPP, should the date of your payslip of the date that the pension payment was paid into the SIPP by your employer be used to determine the tax year that it fell into?

I've noticed in the past that often my employer doesn't pay the pension payment into the SIPP until early the following month (or at least it doesn't show up on the transactions until then).

Grumpy_chap

MX5huggy said:

Are you also aware of the tax relief limit? You can’t pay into a pension and receive tax relief in any year in excess of your salary. No matter how much AA you have left in that year or carried forward. 

An individual cannot pay in more than their salary, but their employer can.

NedS

Pat38493 said:

Dazed_and_C0nfused said:

If it's one of the types that need declaring then you have to declare the contribution.

You don't have to explain anything about using carry forward but should retain your own workings in case HMRC ask any questions.

You would have to declare an annual allowance charge if you exceed the limits.

This is probably a bit of a pedantic point, but when calculation the annual pension allowance and carry forward available, if this is an DC employer SIPP, should the date of your payslip of the date that the pension payment was paid into the SIPP by your employer be used to determine the tax year that it fell into?

I've noticed in the past that often my employer doesn't pay the pension payment into the SIPP until early the following month (or at least it doesn't show up on the transactions until then).

If it's a SIPP, you will be able to see exactly when the payment was made because it's your SIPP. If there is more than once date showing, for example date the payment was made and date the funds cleared, it would be the earlier date that the payment was made. If it's on or before 5th April, then it falls to last tax year. If it's dated 6th April onward then it falls into this tax year. 

mark55man

Thank you @hugheskevi bery interesting  - although some of your reasons don't apply, many do.  It is possible that either some larger than usual bonuses (bonii!!) might arrive over next 12-18 months as a one off following a special project whose outcome is as of yet uncertain and/or I may get made redundant.

In either case Being able to limit the tax/penalty to 40% and not 60% will be helpful.  I am not yet close to LTA so I don't think that will be a double whammy!