Unable to use carried forward pension allowance

Simplicity77

My Salary was around £30k for the last three years and I paid in only £10000 towards pension. I thought my £80k of unused carried forward allowance could be used to reduce my tax bill from a lump sum settlement, but sadly I don't qualify as my salary was below £40k min. Not everyone is lucky to ever have a sal of £40k so Im very disappointed. Even my hubby is on less and its very unfair.

Disappointed to have to pay the tax that I could have put towards a pension. Does anyone have ideas to reduce a tax bill some of which will paid at the higher rate?

Dazed_and_C0nfused

If you are liable to higher rate tax what is preventing use of carry forward? 

Is your income different now i.e. pension, interest or dividends say rather than income from employment?

Marcon

Simplicity77 said:

My Salary was around £30k for the last three years and I paid in only £10000 towards pension. I thought my £80k of unused carried forward allowance could be used to reduce my tax bill from a lump sum settlement, but sadly I don't qualify as my salary was below £40k min. Not everyone is lucky to ever have a sal of £40k so Im very disappointed. Even my hubby is on less and its very unfair.

Disappointed to have to pay the tax that I could have put towards a pension. Does anyone have ideas to reduce a tax bill some of which will paid at the higher rate?

Why is it unfair? The same rules apply to everyone: you've simply not understood them (many don't, given the complexities and mis-reporting of this topic). If you wanted to make a contribution of £80K, you would need to be earning at least £80K (not just £40K) in the year you make the contribution if you wish to use carry forward.

As Dazed has said, if you are a higher rate taxpayer as a result of this settlement, why can't you use carry forward, assuming the settlement was in the current tax year and counts as 'relevant income' for pension purposes?

hugheskevi

My Salary was around £30k for the last three years and I paid in only £10000 towards pension. I thought my £80k of unused carried forward allowance could be used to reduce my tax bill from a lump sum settlement, but sadly I don't qualify as my salary was below £40k min. 

It is a common misunderstanding that you need to earn £40K+ to use carry forward. This is not the case. Anyone, regardless of their earnings, is able to carry-forward unused Annual Allowance from the last 3 financial years.

The limit on pension tax relief you face is the amount of your earnings that attract tax relief in the current financial year. This is the maximum amount you can contribute to a pension and receive tax relief (note the limit is inclusive of tax relief), subject to this being within your available Annual Allowance (which is your current year's Annual Allowance plus carry forward from last 3 years).

Note that if you contribute to a scheme using net pay arrangement you would only receive tax relief up to the amount of income tax paid, whereas contributing to a scheme using Relief at Source enables tax relief on all earnings that attract tax relief, even if no tax was paid due to the amount being within Personal Allowance.

Albermarle

All this has been explained before to the OP

Can unused Pension Contributions for last 3 years from my W/place pension be paid into a Privte pens — MoneySavingExpert Forum

Simplicity77

Sorry but I think you are wrong: I got this response from Moneyhelper

to be eligible to do 'carry forward' and go back three years, in the tax year you want to exercise 'carry forward', you have to have earnings from employment or self-employment of £40,000 gross or more; and (ii) you have had to been a member of a pension scheme in the current tax year, and the previous 3 tax years. As you only have a salary of £30k in this current tax year, you cannot do 'carry forward', as you do not meet the condition regarding earnings from employment in the current tax year

Im guessing once I get over £40k this year my carried forward allowance will go into 23/24, but I will be using it up this year so will have no carried forward next year.

Anyway, I lose out for the least three years and felt like I was hit with a stone when I was told this by Moneyhelper. Im sad.

coyrls

No, once you get over £40K earnings this year, your carry forward from previous years becomes available, capped by the amount you earn this year.

Simplicity77

coyrls said:

No, once you get over £40K earnings this year, your carry forward from previous years becomes available, capped by the amount you earn this year.

Really? I was trying to think that but thought I was just trying to convince myself unnecessarily.
So my lump sum pushes me over £40k  which triggers the carried forward for the previous 3 years which were below the threshold of £40k. If so then you just made my day with a very big smile.

coyrls

Yes, what you quote says:

As you only have a salary of £30k in this current tax year, you cannot do 'carry forward', as you do not meet the condition regarding earnings from employment in the current tax year

But if you earn over £40K in this current tax year, you do meet the condition regarding earnings from employment in the current tax year, so you can do 'carry forward'.

The question is if your lump sum counts as relevant earnings, if not then you will not earn over £40K.  What is the source of your lump sum?

NedS

Simplicity77 said:

coyrls said:

No, once you get over £40K earnings this year, your carry forward from previous years becomes available, capped by the amount you earn this year.

Really? I was trying to think that but thought I was just trying to convince myself unnecessarily.
So my lump sum pushes me over £40k  which triggers the carried forward for the previous 3 years which were below the threshold of £40k. If so then you just made my day with a very big smile.

Why don't you tell us exactly what your gross earnings are going to be for this year tax year, and exactly how much you have contributed in the last 3 tax years, and we will be able to better help you.

Simplicity77

Yes, I think that is sinking in a bit. The way some websites say things it's like they close doors when they can only give you one way of thinking.