Question on carry forward with salary sacrifice pension

boots_babe

Hi,

Would like to work out how much carry forward allowance my husband has, so he can make a one off payment into his SIPP. But have a couple of questions.

He pays into both a SIPP and a DC workplace pension (this is via salary sacrifice). He is a 40% tax payer.

When calculating how much he has paid in over the last 3 years and hence how much of the 3x£60k allowance he has left, I'm not sure which figures to use.

For his SIPP do I include:

• just the net amount he paid in OR 
• the net amount paid in plus the 20% net top up that the SIPP provider made OR
• the net amount paid in plus the 20% net top up the SIPP provider made plus the 20% additional tax relief he claimed back via his self assessment?

For the salary sacrifice pension, do I include:

• just the amount he paid in (which of course was not taxed as via sal sac) OR
• the amount he paid in PLUS the employer contribution.

I thought I'd easily find this out online but cannot seem to find a straightforward answer! Many thanks.

Marcon

boots_babe said:

Hi,

Would like to work out how much carry forward allowance my husband has, so he can make a one off payment into his SIPP. But have a couple of questions.

He pays into both a SIPP and a DC workplace pension (this is via salary sacrifice). He is a 40% tax payer.

When calculating how much he has paid in over the last 3 years and hence how much of the 3x£60k allowance he has left, I'm not sure which figures to use.

For his SIPP do I include:

• just the net amount he paid in OR 
• the net amount paid in plus the 20% net top up that the SIPP provider made OR
• the net amount paid in plus the 20% net top up the SIPP provider made plus the 20% additional tax relief he claimed back via his self assessment?

For the salary sacrifice pension, do I include:

• just the amount he paid in (which of course was not taxed as via sal sac) OR
• the amount he paid in PLUS the employer contribution.

I thought I'd easily find this out online but cannot seem to find a straightforward answer! Many thanks.

It's not 3 x £60K - that is only from 2023-24 tax year on (before then it was £40K). 

The annual allowance includes all personal contributions and the basic rate tax 'top up' on these, plus any employer contributions (whether 'actual' or salary sacrifice).

Will he be earning enough in the tax year in which he wants to use carry forward to ensure he can get the relevant tax relief? 

This might be a useful link for you: https://community.hmrc.gov.uk/customerforums/pt/ade04f47-8116-ee11-a81c-000d3a8751e3

boots_babe

Ah thank you for pointing that out. That does make sense, but I didn't consider that the previous years would just remain at £40k. So over the last 3 years, including this current 2023/24 year, there is a £140k allowance then.

Yes he should have more than enough to cover the amount he wants to carry forward and get tax relief. Once I think I've got the calculations sorted out, I may well post back her for a sense check. In case I have overlooked anything else. Many thanks.

ColdIron

It's £60,000 this year but £40,000 for the previous 3 years so 3 * £40,000. You need to exhaust the current years allowance before using CF and need relevant earnings to support it, so £180,000 to make the maximum use of this year and CF

The allowance includes gross payments (so personal contributions plus basic rate tax relief) plus employer contributions

There are no personal contributions via SS as it's all employer contributions

The higher rate relief claimed does not count as it didn't go into the pension

boots_babe

Thanks ColdIron. My only query re what you've said, is that his payslip does show 2 distinct pension debits, once for the employer and one for the employee. However it's definitely salary sacrifice.

ColdIron

Possibly, to make it plain to him, but all the pension sees is a single employer contribution and that's what counts for the AA

boots_babe

Would be glad if someone could check my workings below, to calculate how much more can be contributed as a lump sum in this tax year, and also how much carry forward is available from the previous 3 years. I will no doubt have got something wrong!

As my husband has a 'reference base salary' but then a 'flexible benefits pot' on top (out of which comes the sal sac pension contributions amongst other things), I have listed both figures for each year.

2023/2024 tax year (all figures given as the tax year end forecast totals)

Total earnings £147080 / Base salary £94786.

£30331 paid into work pension via sal sac 

£0 paid into SIPP

Annual allowance £60k

Allowance remaining £60k - £30331 = £29669

2022/2023 tax year:

Total earnings £147080  / Base salary £94786.

£30331 paid into work pension via sal sac

£5k paid into SIPP (£4k contribution + £1k tax added into SIPP)

Annual allowance £40k

Allowance remaining £40k - £30331 - £5k = £4669

2021/2022 tax year:

Total earnings £130531  / Base salary £94786.

£28909 paid into work pension via sal sac

£12494 paid into SIPP (including contribution + 20% tax added)

Annual allowance £40k

Allowance remaining £40k - 28909 - £12494 = minus £1403.

2020/2021 tax year:

Total earnings £109981 / Base salary £94786.

£26027 into work pension via sal sac 

£0 paid into SIPP 

Annual allowance £40k

Allowance remaining £40k - £26027 = £13973

In 2021/2022 the pension contributions exceed the £40k allowance, but does that just mean that the extra £1403 would have come out of carry forward from the previous tax year?

Assuming so, then for the previous 3 years of carry forward, I think there is £17239 (£4669 - £1403 + 13973). Is that right? 

Then for this current tax year he can still pay in an additional £29669.

My next question is, to use the carry forward, would he pay into his SIPP £17239 (then 20% tax would be added into SIPP automatically)? 

Or does he pay in that minus 20% so £13791 (such that when 20% tax is added into his SIPP, the total would be £17239)?

Very grateful for anyone who could sense check, many thanks.

QrizB

The added tax relief for a personal SIPP contribution is 25%. Is it just a typo that you've typed 20% for 2021/22 above?

ColdIron

boots_babe said:

In 2021/2022 the pension contributions exceed the £40k allowance, but does that just mean that the extra £1403 would have come out of carry forward from the previous tax year?

I haven't gone through all the numbers but for 2021/22 he would have used CF for the oldest year of the previous 3 years at that time so 2018/19, assuming he had unused allowance for that year. That year is now beyond use so would leave the current 3 years intact. 2021/22 remaining allowance = £0

You won that one

Somebody

As  understand it, it's not the employee's salary sacrificed amount that counts - it's the employer's contributions. So for every £1 that is sacrificed, how much goes in to the pension from the employer?  It may be 1 for 1, but it's this number you need to work out the remaining allowance?

Marcon

boots_babe said:

My next question is, to use the carry forward, would he pay into his SIPP £17239 (then 20% tax would be added into SIPP automatically)? 

Or does he pay in that minus 20% so £13791 (such that when 20% tax is added into his SIPP, the total would be £17239)?

Very grateful for anyone who could sense check, many thanks.

He pays in net of tax to the SIPP, so that when the 25% top up is added by the provider, it brings him up to the required total - but as others have said, I think you have missed out the 'actual' employer contribution (as opposed to the salary sacrificed 'employer contribution'), which needs to be included for annual allowance purposes. Only then can you work out how much headroom he has for carry forward.