Pension - Carry forward

Dazed_and_C0nfused

For most people it will be taxable earnings (or business profits) which count.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#earnings

Albermarle

Why could the 5k just not stay in there and Rita not just pay back the 1k owed back to HMRC? Surely that's the easiest way especially as money gets invested which mine would be in a SIPP so that would mean shares would have to be sold if no cash held on the account.

It just does not work like that.

In any case providers have a system that applies to all their hundreds of thousands of clients. Most ( all?) of these systems  can not deal with non standard situations, such as having money in the pension that has not had tax relief applied. So the only solution for the provider is to fully unwind the excess contribution

Maybe some more niche providers, working with financial advisors/higher charges may have more flexibility, but the mainstream low cost ones do not as far as I am aware.

zagfles

curtis122 said:

I found an example of this on a pension advice site.

Example:

Rita made contributions of £24,000 to a personal pension. After tax relief was given this came to £30,000. Her relevant earnings for the tax year ended up being £25,000. This meant she had contributed more than her relevant earnings.

As Rita can only receive tax relief on her contributions up to £25,000, the provider refunded the £5,000 that was more than her relevant earnings.

The refund made to Rita though is only £4,000 with £1,000 being re-paid to HMRC as this was the tax relief that had been claimed on the refunded contributions.

There is no tax to pay when receiving a refund of excess contributions lump sum.

Why could the 5k just not stay in there and Rita not just pay back the 1k owed back to HMRC? Surely that's the easiest way especially as money gets invested which mine would be in a SIPP so that would mean shares would have to be sold if no cash held on the account. 

This thread has taught me a lot I never knew or knew properly. When I moved my shares into my Sipp it was to shelter it from the Dividend, Capital gains changes the government are imposing over the next few years, this never even entered my mind and now there is a chance I may be stung.

What does it mean by 'relevant' earnings? That makes it sounds like its not just 'working' earnings.

I think she could if she really wanted to. The way it should really be done is to tell the SIPP provider that you're making excess contributions and not to claim tax relief, but from a previous thread here IIRC someone repaid excess tax relief via a tax return.

But why would you want to - you'd end up getting taxed on the same money twice. It's generally not sensible to pay into a pension without tax relief as you're liable to tax on the way out. There can be some niche scenarios where it's a good idea.

curtis122

I have a smaller pension that I was thinking of moving into my SIPP.

First and I know this is a stupid question but if i transfer a small Scottish Widow auto enroll pension I have would that be seen as a 'contribution' in any way in the SIPP?  I know the answer is no but as I know I will most probably be making excess contributions come the end of the FY, I just don't want the possibility of a no 'but depends' answer and I end up making things worse and having to pay back even more.

So on the basis its not, if I transfer it and then dont invest a chunk and leave it as available cash in the SIPP, then come the end of the FY whatever I owe back that I'm over, it will then be covered by the sitting available cash and then nothing has to be sold to raise the money to cover it instead?

Is this a good idea help cover any if i owe anything in the end? I was thinking about moving 1 if not 2 of my smaller pensions anyhow as I have so many due to changing jobs a lot over the years that have small amounts in.