Carry Forward Tax Relief and Pension Contributions

Stringybob3

I am looking to maximise my DC pension contribution this financial year and was hoping you could sense-check my thought process. The only recent contribution to my pension was £8k last financial year (22/23). Other than that, for years my only contribution has been my workplace pension contributions of approx. £3k per year. I have approx £16k of higher rate tax that I have paid since the 20/21 tax year (I will do a calculation at the end of this tax year to get a more definite figure) so I am looking to claim as much of this back as possible utilising the Carry Forward option. I will reclaim the higher rate of tax on the £8k (i.e. £3,333) when I get round to doing to my 22/23 tax return.

This year (23/34) I will be earning £60k and will be getting a bonus in region of £40k. The bonus I am looking to pay directly to my DC via salary sacrifice. I am also looking to add £40k from savings to my pension to allow me to claim the £16k higher rate tax, carried forward from the last 3 years.

In doing the above, am I falling within the Tax Relief Carry Forward and Pension Contribution Carry Forward rules?

Dazed_and_C0nfused

You can only ever get tax relief in the tax year you make the contribution in.

Carry forward simply allows larger contributions in the current tax year, it has no impact on tax paid in any previous tax year.

Doctor_Who

As above - you can carry forward unused allowance for use in the current tax year, you can't use it against tax paid in previous tax years. So you can use carry forward to contribute more than £60K in the current tax year, but it will only reduce HR tax paid this year.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward

Stringybob3

Ah I see - so the carry forward is only if you have made the contribution, but not claimed the tax. Glad I asked the question now!

Dazed_and_C0nfused

No, tax is incidental.

Doctor_Who

Stringybob3 said:

Ah I see - so the carry forward is only if you have made the contribution, but not claimed the tax. Glad I asked the question now!

As Dazed_and_C0nfused said - carry forward allows you to make a pension contribution above the £60K AA in the current tax year by carrying forward unused AA from the 3 previous years (as long as you have sufficient earnings to cover the £60K+ pension contribution in the current tax year).

Stringybob3

Ok, so this tax year I will be earning £100k. I will be contributing £43k salary sacrifice, £40k from savings, on which £10k will be added for basic tax relief. So overall £93k. This is less than my annual earning so that is fine, but it is over the £60k AA. Do I need to inform someone (the Pension company?) that I wish to carry forward unused AA from the previous year?

QrizB

Stringybob3 said:

Ok, so this tax year I will be earning £100k. I will be contributing £43k salary sacrifice, £40k from savings, on which £10k will be added for basic tax relief. So overall £93k. This is less than my annual earning so that is fine, but it is over the £60k AA. Do I need to inform someone (the Pension company?) that I wish to carry forward unused AA from the previous year?

No, but you should keep your own records in case anyone asks.

Doctor_Who

Stringybob3 said:

Ok, so this tax year I will be earning £100k. I will be contributing £43k salary sacrifice, £40k from savings, on which £10k will be added for basic tax relief. So overall £93k. This is less than my annual earning so that is fine, but it is over the £60k AA. Do I need to inform someone (the Pension company?) that I wish to carry forward unused AA from the previous year?

No, HMRC say you don't need to let them know. You may well need to carry forward more than one year since the AA was £40K in previous tax years. Keep your own records of what you have done.

https://www.gov.uk/guidance/check-if-you-have-unused-annual-allowances-on-your-pension-savings

Albermarle

Stringybob3 said:

Ok, so this tax year I will be earning £100k. I will be contributing £43k salary sacrifice, £40k from savings, on which £10k will be added for basic tax relief. So overall £93k. This is less than my annual earning so that is fine, but it is over the £60k AA. Do I need to inform someone (the Pension company?) that I wish to carry forward unused AA from the previous year?

No, but you might find the pension company will send you a warning that you are going over the AA for this years . Just ignore it.

RNV

If you earn 100k, more tax efficient will be to salary sacrifice max (you can do it up to min wage) and supplement your min wage net with the savings - this way you save 12%/2% NI as well.