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Taxable income

Do savings count as taxable income and if so can put 60k in my pensions and use carry forward? i expect to inherit about 150k. I earn about 32k and also in previous tax years and paid around 6k in pensions therefore i would be 26k in unused allowances. Is this right or not? Am not sure as what i have read this backdated adding seems to be only for those earning above the Annual Allowance.
Many thanks in advance
Mr F
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Comments

  • Albermarle
    Albermarle Posts: 25,956 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
    Savings interest counts as taxable income, but does not count as relevant earnings for the purpose of pension contributions ( same as income from pensions)
    So you are limited by your gross salary of £32K . You can add £25,600 and £6400 of tax relief will be added.
    The annual allowance carry forward is not relevant, as you do not have a high enough salary to take advantage of it.
  • Pat38493
    Pat38493 Posts: 3,132 Forumite
    Tenth Anniversary 1,000 Posts Name Dropper Combo Breaker
    edited 26 October 2023 pm31 5:25PM
    The money you inherit would not in itself count as income but it might be subject to inheritance tax if the person who left you the money had more than the IHT allowances available.

    Howver any interest on the money that you earn outside of ISA or pension, might become taxable if it's more than a certain limit.  Most likely the limit for you would be £1000 per year of interest I think, which you could easily exceed with £150K.  You can reduce the problem by paying 20K per year into an ISA.

    Pensions - There are 2 limits -

    1. You can only put into the pension up to the amount of earnings you have in that year so if you earn 32K you are limited to 32K of your money put in.  This limit has no carry forward.

    2. you can put up to 60K this year (40K prior 3 years) into a pension in total including any employer contributions.  This limit once you have used up this year, you can carry forward any leftover from the last 3 years.

    Based on your comments you are limited by the 32K so you would have to put in 32K, and then another 32K the next tax year. (well actually 32K less the 6K you already contribute).

    Often the easiest way to do this is to increase your employer pension contributions to the maximum % allowed and supplement your living costs with the inherited cash.  you could also make a lump sum payment into a personal pension.
  • Ok. Thanks that is what i thought before. I was just wandering what counts as income for pension contributions term.
    I will seek other avenues for my money.
  • Pat38493
    Pat38493 Posts: 3,132 Forumite
    Tenth Anniversary 1,000 Posts Name Dropper Combo Breaker
    MrFlick said:
    Ok. Thanks that is what i thought before. I was just wandering what counts as income for pension contributions term.
    I will seek other avenues for my money.
    Actually putting at least as much of the money as you are allowed to into the pension might be a good choice for as much of it as you can - you will get 20% tax relief added back onto the money by HMRC, and you will be able to take 25% back out tax free so you will end up with an 8% or so of profit, before any investment growth.


  • One thing I forget to mention is what happens if I put in more than my earnings income eg 32k as it is not set at as but is below the annual allowance of 70k eg if I put  in 33k. Would this mean I only get tax relief on the 32k or would I be told off for the extra 1k
    Hope this makes sense
  • QrizB
    QrizB Posts: 15,226 Forumite
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    MrFlick said:
    One thing I forget to mention is what happens if I put in more than my earnings
    Your gross pension contribution (including tax relief) cannot exceed your relevant earnings.
    If you claim tax relief on more than that, HMRC will claw it back. This will usually leave you worse off than if you'd put the extra money into an ISA instead.

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  • AlanP_2
    AlanP_2 Posts: 3,496 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    If you accidentally go over your salary limitation I have seen some comments on here that pension providers can unwind things to get you back to the correct situation.


    Note it's a can and not a will - some are more accommodating than others I think.
  • Albermarle
    Albermarle Posts: 25,956 Forumite
    10,000 Posts Sixth Anniversary Name Dropper
    MrFlick said:
    One thing I forget to mention is what happens if I put in more than my earnings income eg 32k as it is not set at as but is below the annual allowance of 70k eg if I put  in 33k. Would this mean I only get tax relief on the 32k or would I be told off for the extra 1k
    Hope this makes sense
    Just best not to if possible, to avoid later hassle.
  • I received a personal injury payment of £9750  this year  and is this classed as taxable income? 
    Anything else that is included would be appreciated
  • MrFlick said:
    I received a personal injury payment of £9750  this year  and is this classed as taxable income? 
    Anything else that is included would be appreciated
    This link might help, it gives a list of 'relevant earnings' for pension tax relief: 

    https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#earnings
    'Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it' - Albert Einstein.
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