Maximum pension contribution for past years

handful

Can someone clarify something for me please. If I understand correctly the maximum contribution to receive TR is now total earnings or £60k per annum. When it comes to topping up previous years unused allowance (I believe this is up to 3 years?) I assume that those years would only be up to the maximum that applied during those years, i.e. £40k per year?

I just checked my last P60 and this doesn't seem to show what my contributions have been so what is the most accurate way of calculating how much unused allowance there is? For info I pay into a workplace scheme with People's Pension and also pay into a SIPP.

TIA

Marcon

Useful (if lengthy) summary of rates and allowances, updated for budget changes: https://www.gov.uk/government/publications/rates-and-allowances-pension-schemes/pension-schemes-rates

Remember that to use carry forward you need to be earning at least as much as you are contributing in the 23/24 tax year (e.g. if you'd made no contributions at all, you'd need to be earning £40K x 2 + £60K (£140K) in 23/24 to make the maximum contribution.

A P60 doesn't show figures for relief at source pensions (and both the People's Pension and SIPPs are relief at source). You need to check your own records/payslips to establish how much you've paid in during the previous two tax years i.e. personal contributions + tax relief, plus employer contributions.

handful

Marcon said:

Useful (if lengthy) summary of rates and allowances, updated for budget changes: https://www.gov.uk/government/publications/rates-and-allowances-pension-schemes/pension-schemes-rates

Remember that to use carry forward you need to be earning at least as much as you are contributing in the 23/24 tax year (e.g. if you'd made no contributions at all, you'd need to be earning £40K x 2 + £60K (£140K) in 23/24 to make the maximum contribution.

A P60 doesn't show figures for relief at source pensions (and both the People's Pension and SIPPs are relief at source). You need to check your own records/payslips to establish how much you've paid in during the previous two tax years i.e. personal contributions + tax relief, plus employer contributions.

Thanks Marcon, that's really useful info and I was unable to find that!. The reason I was asking was I am currently waiting for an inheritance to come through. I have paid circa £12k a year into my pensions for the last 3 years (£36k gross) and my earnings have been £57k/£57k/£60k for those 3 years and will likely remain at that level for the coming year.I believe I am able to make the maximum contribution out of the inheritance so needed to understand how this might work. So roughly speaking then if my figures were accurate I could pay in £140k in total, less the £36k I've already paid so £104k and to achieve this I would need to pay in £83k? Am I on track with my thinking? Thanks

Dazed_and_C0nfused

handful said:

Marcon said:

Useful (if lengthy) summary of rates and allowances, updated for budget changes: https://www.gov.uk/government/publications/rates-and-allowances-pension-schemes/pension-schemes-rates

Remember that to use carry forward you need to be earning at least as much as you are contributing in the 23/24 tax year (e.g. if you'd made no contributions at all, you'd need to be earning £40K x 2 + £60K (£140K) in 23/24 to make the maximum contribution.

A P60 doesn't show figures for relief at source pensions (and both the People's Pension and SIPPs are relief at source). You need to check your own records/payslips to establish how much you've paid in during the previous two tax years i.e. personal contributions + tax relief, plus employer contributions.

Thanks Marcon, that's really useful info and I was unable to find that!. The reason I was asking was I am currently waiting for an inheritance to come through. I have paid circa £12k a year into my pensions for the last 3 years (£36k gross) and my earnings have been £57k/£57k/£60k for those 3 years and will likely remain at that level for the coming year.I believe I am able to make the maximum contribution out of the inheritance so needed to understand how this might work. So roughly speaking then if my figures were accurate I could pay in £140k in total, less the £36k I've already paid so £104k and to achieve this I would need to pay in £83k? Am I on track with my thinking? Thanks

No, your maximum contribution eligible for tax relief would be limited by your taxable income, so c£60k.

Which would be £48k from you and £12k in basic rate tax relief.

You would be due some higher rate tax relief on the amount normally charged at 40% (usually £9,730 if taxable pay is £60k).

handful

Dazed_and_C0nfused said:

handful said:

Marcon said:

Useful (if lengthy) summary of rates and allowances, updated for budget changes: https://www.gov.uk/government/publications/rates-and-allowances-pension-schemes/pension-schemes-rates

Remember that to use carry forward you need to be earning at least as much as you are contributing in the 23/24 tax year (e.g. if you'd made no contributions at all, you'd need to be earning £40K x 2 + £60K (£140K) in 23/24 to make the maximum contribution.

A P60 doesn't show figures for relief at source pensions (and both the People's Pension and SIPPs are relief at source). You need to check your own records/payslips to establish how much you've paid in during the previous two tax years i.e. personal contributions + tax relief, plus employer contributions.

Thanks Marcon, that's really useful info and I was unable to find that!. The reason I was asking was I am currently waiting for an inheritance to come through. I have paid circa £12k a year into my pensions for the last 3 years (£36k gross) and my earnings have been £57k/£57k/£60k for those 3 years and will likely remain at that level for the coming year.I believe I am able to make the maximum contribution out of the inheritance so needed to understand how this might work. So roughly speaking then if my figures were accurate I could pay in £140k in total, less the £36k I've already paid so £104k and to achieve this I would need to pay in £83k? Am I on track with my thinking? Thanks

No, your maximum contribution eligible for tax relief would be limited by your taxable income, so c£60k.

Which would be £48k from you and £12k in basic rate tax relief.

You would be due some higher rate tax relief on the amount normally charged at 40% (usually £9,730 if taxable pay is £60k).

Thanks D&C. So I won't be able to top up previous years with inheritance then, it needs to be taxable income?

Dazed_and_C0nfused

No, pension recycling aside you can generally contribute using whatever funds you like.

But you are constrained by your taxable income as to how much you are permitted to contribute and get tax relief.

Also, noone can ever "top up previous years".  Unused annual allowance from previous years can, in some situations, be used to enable more to be contributed in the current tax year.  

zagfles

You're making the very common mistake of confusing the annual allowance and the tax relief limit. They are separate things.

You have loads of annnual allowance available as you have plenty of carry forwards available from previous years. But the tax relief limit of 100% of earnings (or 3600 if more) is a different thing, and it does not have any carry forwards.

DavidT67

Not just taxable income, but relevant taxable earnings.  So dividends, interest, rent received, etc. don't count either.

handful

Ok thanks for all of the advice so far. So I now understand where I was going wrong but have a further question. Can I top up to the £60k limit that I am going to earn this year and specify that the top up is for one of the previous years unused allowances leaving this year to be topped up next year assuming I carry on working in the same job on the same salary?

zagfles

handful said:

Ok thanks for all of the advice so far. So I now understand where I was going wrong but have a further question. Can I top up to the £60k limit that I am going to earn this year and specify that the top up is for one of the previous years unused allowances leaving this year to be topped up next year assuming I carry on working in the same job on the same salary?

No. This year's contributions will use this year's AA first. If your total PIA is over £60k including employer/workplace contributions then it'll use up any available carry forwards starting with the oldest available ie 3 years ago (assuming you were in a pension scheme then).

You need to understand how workplace pension contributions are taken before you can work out the max you can contribute to a SIPP. Don't even think about maxing out contributions until you're sure you understand. For instance, sal sac/net pay contributions will reduce taxable earnings, RAS contributions won't and so the grossed up amount would need to be deducted from your taxable earnings. How are your contributions taken?

handful

zagfles said:

handful said:

Ok thanks for all of the advice so far. So I now understand where I was going wrong but have a further question. Can I top up to the £60k limit that I am going to earn this year and specify that the top up is for one of the previous years unused allowances leaving this year to be topped up next year assuming I carry on working in the same job on the same salary?

No. This year's contributions will use this year's AA first. If your total PIA is over £60k including employer/workplace contributions then it'll use up any available carry forwards starting with the oldest available ie 3 years ago (assuming you were in a pension scheme then).

You need to understand how workplace pension contributions are taken before you can work out the max you can contribute to a SIPP. Don't even think about maxing out contributions until you're sure you understand. For instance, sal sac/net pay contributions will reduce taxable earnings, RAS contributions won't and so the grossed up amount would need to be deducted from your taxable earnings. How are your contributions taken?

Thanks zagfles, I haven't got he money yet but trying to prepare for when I do!

I pay a small amount into a company pension with Peoples Pension (not sal sac) and my employer also pay into that, total of employer and employee of around £3.5k and I then pay £560pm into a SIPP which is grossed up to £700 so £8.4k per year into that. I also have an adjustment to my tax code for the 40% relief.