Salary sacrifice and annual pension allowance

anthonyml

Hi All, 

I realise similar questions have been asked previously, but i cannot find the information that answers my specific query. I hope you can help. 

My 24/25 Salary is as follows;

£86,000 Basic
£36,000 Annual Bonus
£122,000 Total 

My employer also pays 5% of my basic earnings into my pension = £4292 PA

My intention was this year to try and boost my pension (I have a pension salary sacrifice available) so.....

Can I do the following;

Pay £72,000 into my pension using salary sacrifice - So my total annual contribution will be £76,292 

This reduces my salary to £50,000 PA

So my question is, does this mean that my annual pension allowance is only £50k for this year? 

And if this is correct, can I get around this by using my previous 3 years carry forward in this situation? (I have plenty over carry forward available?) 

I really don't want to make a mistake and have an additional surprise tax bill in April 25! 

I hope this question makes sense,

Thank you for any help in advance.

hugheskevi

You are confusing the terms.

Your Annual Allowance is £60,000 plus carry-forward of unused Annual Allowance from the last 3 tax years (unless you have significant other income or have triggered the Money Purchase Annual Allowance).

If you sal sac £72K plus the employer contribution and put £76,292 into a pension you have exceeded the £60,000 Annual Allowance, and would use up £16,292 of carry forward from 2021/22 (assuming that amount is available from that year, else it then moves on to unused Allowance from 2022/23).

After the £72K sal sac your gross salary is £50,000. Your Annual Allowance remains at the standard £60,000. Your employer pension contribution is £76,292. Your individual pension contribution is £0.

anthonyml

Thank you for your help hugheskevi,

I was under the impression that the £60k annual allowance was either £60k or 100% of your salary if less than £60k
(So in my case my my annual allowance would be £50k) - Have I got that wrong?

Sorry if i'm confusing the issue.

Are you basically saying that there is nothing wrong with what i am planning and as long as i have £16,292 carry forward available, i will not have to pay additional tax at the end of the year?

Thank you

hugheskevi

anthonyml said:

I was under the impression that the £60k annual allowance was either £60k or 100% of your salary if less than £60k
(So in my case my my annual allowance would be £50k) - Have I got that wrong?

Are you basically saying that there is nothing wrong with what i am planning and as long as i have £16,292 carry forward available, i will not have to pay additional tax at the end of the year?

Completely wrong. You are confusing Annual Allowance with Relevant Earnings that attract tax relief - a very common error.

Yes, you are fine based on what you have stated.