Exceeding pension allowance and self assessment

roadweary

Hi,

My company pension uses the salary sacrifice mechanism.  By this April, I will have exceeded my 40k max allowable total pension contributions for the year.  However, that is offset by the unused pension allowance in the previous 3 financial years.  I do fill in a self assessment form every year but didn't notice anything covering this scenario.

I can demonstrate through my annual pension statements that there should be no tax payable for exceeding the pension contributitions for this year.

I've read this https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm055200 but what I couldn't see was whether I need to declare this situation in any way.  Or whether simply knowing the rules and having proof of my previous 3 FY pension contributions is sufficient?

Thanks,
R

Albermarle

 Or whether simply knowing the rules and having proof of my previous 3 FY pension contributions is sufficient?

It is sufficient. You might get an automatic warning from the pension provider that you are exceeding the £40K limit , but you can ignore it.

mark55man

For what is quite a considerable tax benefit, the rules do seem to take the taxpayers word for it.  However, who knows what checks and balances exist behind the scenes - and I think you have to give HMRC credit for knowing what's good to keep an eye on and what isn't VFM.

roadweary

Another thing I found confusing was this..... Imagine, I had the following contribution levels:

FYE 2022      41,000
FYE 2021       35,000
FYE2020         32,000
all other years hugely under the limit.

I assumed that I'd have 12k additional I could invest in FYE2023.  8k spare from 2020, 5k spare from 2021, but remove 1k over from 2022.  My pension (but not tax) adviser has said it's actually 13k as it comes from the earliest years first.

Is that correct?

HappyHarry

roadweary said:

Another thing I found confusing was this..... Imagine, I had the following contribution levels:

FYE 2022      41,000
FYE 2021       35,000
FYE2020         32,000
all other years hugely under the limit.

I assumed that I'd have 12k additional I could invest in FYE2023.  8k spare from 2020, 5k spare from 2021, but remove 1k over from 2022.  My pension (but not tax) adviser has said it's actually 13k as it comes from the earliest years first.

Is that correct?

Yes. The £41,000 contribution in FYE 2022 would have used £40,000 from FYE2022 and £1,000 from FYE2019. 

This would leave you with £8,000 from FYE2020 and £5,000 from FYE2021 that you could carry forward into FYE2023.

roadweary

Thanks both....I made the mistake of considering the previous 3 years as having a total allowance of 120k, and then whatever over/underusage would balance out....but the way you have explained it clarifies it for me.

Also, regardless of what I put into my pension FYE2023, I can put in 45k in FYE2024 due to the 35k used in FYE2021, correct (I hope)?

HappyHarry

If you put less than £40,000 into your pension in FYE2023 then you can still carry forward the unused £5,000 from FYE2021 to FYE2024.

However if you contibute more than £40,000 in FYE2023 then this will use some or all of the available allowance remaining from FYE2021.

artyboy

mark55man said:

For what is quite a considerable tax benefit, the rules do seem to take the taxpayers word for it.  However, who knows what checks and balances exist behind the scenes - and I think you have to give HMRC credit for knowing what's good to keep an eye on and what isn't VFM.

I used to think it was odd too, but I'm pretty sure that HMRC know exactly how much you are putting into your pension(s) without you having to tell them. Yet if you do want to claim additional tax relief then you do have to tell them. It's almost like an honesty check.

Much like savings interest really - there's a whole bunch of stuff on the tax return they already know. Sometimes I wonder if they are just looking to try and catch people out!

ali_bear

When you do exceed the annual allowance, you just get taxed on the excess (meaning you lose the tax relief on it) am I right? 

Pat38493

ali_bear said:

When you do exceed the annual allowance, you just get taxed on the excess (meaning you lose the tax relief on it) am I right? 

Yes - I am not sure if there is a special box for that on the tax return.

If you report it separately on the tax return and it’s taxed at your marginal rate, this would mean that for some people it might be beneficial to overpay  the 40K allowance as you will only pay 40% on that money and not 60% if your income is nearing 100K and you will lose some of your personal allowance.

ali_bear

I think that has happened to me - for the last several years I have been opting to bung my annual bonus into the company pension via salary sacrifice and I need to check but I almost certainly exceeded the 40k limit.
I don't do self assessment tax returns, I have what the HMRC call a personal tax account and their calculations are very much a behind-the-curtains business. I was wondering why my personal allowance had been docked and this probably explains it. I just wish HMRC were more transparent about my tax calculation.