Annual allowance charge

lucyandthomas

Hi all

I will exceed the annual allowance this year by approx £200, and I don’t have any carry forward left to use.

What are the consequences? Will the additional £200 simply be taxed at my normal rate of 40%, so I’m essentially in the same boat as if I hadn’t put this into my pension and paid the 40% tax when I received this as salary?

My pension is paid as salary sacrifice if that makes a difference.

Thanks - lesson learned, I shouldn’t have calculated pension contributions to hit exactly £40k, as an unexpected pay rise in January has pushed me over the limit.

Marcon

lucyandthomas said:

Hi all

I will exceed the annual allowance this year by approx £200, and I don’t have any carry forward left to use.

What are the consequences? Will the additional £200 simply be taxed at my normal rate of 40%, so I’m essentially in the same boat as if I hadn’t put this into my pension and paid the 40% tax when I received this as salary?

My pension is paid as salary sacrifice if that makes a difference.

Thanks - lesson learned, I shouldn’t have calculated pension contributions to hit exactly £40k, as an unexpected pay rise in January has pushed me over the limit.

See https://www.gov.uk/tax-on-your-private-pension/annual-allowance and scroll down to the relevant bit, telling you what you need to do.

lucyandthomas

Thanks Marcon - I understand I have to include the details on my self assessment. I just wanted to know what the charge would be. Will it just be 40% of the £200 over the allowance?

hugheskevi

The charge is just tax on the excess at your marginal rate of income tax, so yes, 40% of £200.

Unlikely to be relevant in your case, but if the charge were larger it could push you into additional rate of tax, meaning some of the charge was 40% and some at 45%.

lucyandthomas

That’s great, not a big deal then. Thank you

lucyandthomas

Another thought…..

Could I deliberately exceed the annual allowance next year using my salary sacrifice pension in order to bring down my income to avoid some of the HICBC, and increase the student maintenance loan that my daughter will receive?

Thanks

lucyandthomas

Anyone know? Thanks

hugheskevi

Yes, nothing to stop you if that is what you wish to do.

EdSwippet

... however, understand that you pay tax now on pension contributions above the annual allowance, but you will likely also pay tax on the same money in the future, when you make pension withdrawals. That is, probable double-tax on pension contributions above the annual allowance.

Before deciding, make sure that this double-tax does not more than negate any benefit of additional pension contributions. Much will depend on your effective tax rate now compared to your tax rate in retirement. Only one of these is known. The other is not only unknown, but perhaps unknowable until you reach retirement.

lucyandthomas

Thank you - hadn’t thought of that. Another brilliant idea goes up in smoke! The sums don’t add up, so I’ll stick to the 40k allowance.