Need clarity on pension annual allowance vs tax free allowance

carrspaints

I have read many threads on this forum regarding my query here, and I even posted previosuy some months back. But I am still confused.

I know you can carry forward any unused DC pension contributions going back 3 years. I know these contributions were a maximum of £40k p.a. for 2021-2023, but has increased to £60k from April 2023. What I am unclear on is the tax free allowance.

My DC pension contributions are deducted from my salary. For the past 2-years, I have significantly increased my pension contributions, which significantly reduces my tax & N.I. payments. Payments for the Past 5 years have been as follows:

2018/19 - £18,299

2019/20 - £18,705

2020/21 - £19,055

2021/22 - £41,775

2022/23 - £51,514

Salary is around £57k, with annual bonus (when achieved) equivalent to about £11-£12k. My understanding is that I have correctly used my carry forward allowance. But I have read that you "cannot carryforward the tax free allowance". I do understand you can only receive tax relief up to 100% of your earnings p.a.

I have also read that you can save more into your pension while "still benefitting from tax relief by using unused annual allowance from up to the three previous tax years".

Perhaps I am not the sharpest tool in the shed, but this is as clear as mud and seems to contradict itself. "Cannot carry forward tax free allowance. Can benefit from tax relief from unused allowance for past 3 years".

Can anyone help clear this up for me? Thanks

Dazed_and_C0nfused

There are two totally separate elements.

In what is probably slightly over simplified terms these are, 

The annual allowance, previously £40k but now increased to £60k.

The limit for tax relief purposes, either £3,600 for very low/non earners or your pensionable earnings if these exceed £3,600.

Are you currently contributing to a pension or are you sacrificing salary in return for additional employer contributions?

carrspaints

I am salary sacrificing in return for additional employer contributions. The copmany  reduces my salary and they send that to my pension scheme. The company also adds 10% of my salary to the monthly pension contributions.

Dazed_and_C0nfused

carrspaints said:

I am salary sacrificing in return for additional employer contributions. The copmany  reduces my salary and they send that to my pension scheme. The company also adds 10% of my salary to the monthly pension contributions.

So you aren't get any pension tax relief and really it looks like it's just the annual allowance that is relevant at the moment.

With employer contributions you don't get basic rate tax relief added by the pension company but you avoid paying any tax or NI on the amount sacrificed.

carrspaints

That's correct. My concern was the taxman saying I had exceeded tax relief at source.

I find the pension rules & regs in the UK to be extremely complex and a minefield to navigate, so pardon wat may have seemed an irrelevant query. Thanks for your help 👍