Making use of 3 year rollover pension allowance

Elmroad82

Hi,

I understand that I can put up to 60k per year into my pension. If I’m on 100k and have put 30k in per year starting 22/23 year, does this mean on the last day of this tax year (5th April 2025), I can put in Allowance of 180 (60x3) minus 90 (30kx3) = 90k? How is the remainder 90k given tax relief? Is it based on my contributions this year? So I’ll be taxed at the rate as of 70k (100k - 30 input so far this tax year)? 

Many thanks 

hugheskevi

No, the Annual Allowance was only £40,000 from 2023/24, so you would only have 2*£10,000 and 1*£30,000 to carry-forward for a total of £50,000. Add that to £60,000 gives a maximum of £110,000.

But it is all academic, as you can only get tax relief on your earnings that attract tax relief.

If you contributed all of your earnings, £100,000 (gross), then you would get tax relief on all of the contribution at a combination of basic and higher rate relief, and you would use up all your carry forward except £10,000 from 2023/24 which would be available for 2025/26. 

Then in 25/26 you could contribute £70,000.

Alternatively, you could contribute £70,000 in 2024/25 which would use up your carry-forward from 21/22. Then you would have £40,000 of carry-forward available for 25/26. You could again contribute £70,000 in 25/26, leaving £30,000 carry-forward available for 26/27, when you contribute £90,000.

Universidad

Also worth noting, though not relevant for most people, but if you've been paying in to a Defined Benefit scheme over any of that period then the amount of annual allowance you've used up will be different than just "the amount you have paid in" because it's calculated on the benefit accrued and not the contributions made.

Elmroad82

hugheskevi said:

No, the Annual Allowance was only £40,000 from 2023/24, so you would only have 2*£10,000 and 1*£30,000 to carry-forward for a total of £50,000. Add that to £60,000 gives a maximum of £110,000.

But it is all academic, as you can only get tax relief on your earnings that attract tax relief.

If you contributed all of your earnings, £100,000 (gross), then you would get tax relief on all of the contribution at a combination of basic and higher rate relief, and you would use up all your carry forward except £10,000 from 2023/24 which would be available for 2025/26. 

Then in 25/26 you could contribute £70,000.

Alternatively, you could contribute £70,000 in 2024/25 which would use up your carry-forward from 21/22. Then you would have £40,000 of carry-forward available for 25/26. You could again contribute £70,000 in 25/26, leaving £30,000 carry-forward available for 26/27, when you contribute £90,000.

Hypothetically, if I contributed all my 100k salary, presumably I get relief at 40%> 51k then this is reduced reduced to 20% <51k? 

hugheskevi

Elmroad82 said:

hugheskevi said:

No, the Annual Allowance was only £40,000 from 2023/24, so you would only have 2*£10,000 and 1*£30,000 to carry-forward for a total of £50,000. Add that to £60,000 gives a maximum of £110,000.

But it is all academic, as you can only get tax relief on your earnings that attract tax relief.

If you contributed all of your earnings, £100,000 (gross), then you would get tax relief on all of the contribution at a combination of basic and higher rate relief, and you would use up all your carry forward except £10,000 from 2023/24 which would be available for 2025/26. 

Then in 25/26 you could contribute £70,000.

Alternatively, you could contribute £70,000 in 2024/25 which would use up your carry-forward from 21/22. Then you would have £40,000 of carry-forward available for 25/26. You could again contribute £70,000 in 25/26, leaving £30,000 carry-forward available for 26/27, when you contribute £90,000.

Hypothetically, if I contributed all my 100k salary, presumably I get relief at 40%> 51k then this is reduced reduced to 20% <51k? 

Yes.

Fine if contribution made under Relief at Source, also fine if under net pay although a new HMRC process is in place for 2024/25 which might take time to get right so perhaps best avoiding contributing beyond Personal Allowance if using net pay arrangement. If under salary sacrifice, you will be limited to minimum wage (can use relief at source or net pay for remainder).

Elmroad82

hugheskevi said:

No, the Annual Allowance was only £40,000 from 2023/24, so you would only have 2*£10,000 and 1*£30,000 to carry-forward for a total of £50,000. Add that to £60,000 gives a maximum of £110,000.

But it is all academic, as you can only get tax relief on your earnings that attract tax relief.

If you contributed all of your earnings, £100,000 (gross), then you would get tax relief on all of the contribution at a combination of basic and higher rate relief, and you would use up all your carry forward except £10,000 from 2023/24 which would be available for 2025/26. 

Then in 25/26 you could contribute £70,000.

Alternatively, you could contribute £70,000 in 2024/25 which would use up your carry-forward from 21/22. Then you would have £40,000 of carry-forward available for 25/26. You could again contribute £70,000 in 25/26, leaving £30,000 carry-forward available for 26/27, when you contribute £90,000.

If hypothetically I’d contributed nothing for 3 years into my pension and therefore had a rollover of 100k allowance, where do I lose the higher rate of 40% tax relief? Can I take my rolled up 300k salary (over the 3 years) and pay 100k into my pension being given 40% tax relief for the full 100k (I might be being optimistic)? or does my tax relief go to 20% as soon as I hit around 51k (after 49k pension contribution)?

Phoenix72

Why all the 'hypothetical' questions? You either did pay into your pension scheme the last 3 years or you didn't.

To answer the last part, you only get higher rate relief on the amount of higher rate tax paid in the year.

hugheskevi

You are confusing carry-forward of unused Annual Allowance with carry-forward of salary.

You cannot carry-forward salary. Your taxable earnings in the current tax year are unaffected by carry-forward and remain at £100K. Carry-forward simply increases the amount you are able to contribute to a pension before an Annual Allowance tax charge becomes payable.

So the maximum higher rate relief you can get on pension contributions in 2024/25 is your taxable earnings less your higher rate income tax threshold (ie a gross pension contribution of £50K).

Grumpy_chap

Elmroad82 said:

Can I take my rolled up 300k salary (over the 3 years) and pay 100k into my pension being given 40% tax relief for the full 100k

No.  Salary does not "roll over" like that.
The maximum you can contribute to pension this year is your relevant income (generally, that means earnings) for this year.  If your relevant income this year is £100k, that is the most (gross) that you can contribute to a pension this year.
Remember, if your gross basic pay is £100k, the amount you can pay into a pension might already have been reduced by factors such as contributions to an employment pension scheme, or salary sacrifice schemes.

The exception to the above is employer contributions to your pension are not capped by your earned income, but are still counted towards annual allowance.  So, if your whole salary package is £100k plus 5% employer pension contributions, the extra 5% (£5k) can be paid into a pension in addition to your full £100k, so long as you have sufficient AA / carry-forward.

Somebody

OP mentioned that he starting contributing in 22/23.  If he wasn't a member of a UK-registered pension scheme prior to that then he can't carry-forward from 21/22.

Elmroad82

Phoenix72 said:

Why all the 'hypothetical' questions? You either did pay into your pension scheme the last 3 years or you didn't.

To answer the last part, you only get higher rate relief on the amount of higher rate tax paid in the year.

The hypothetical questions are so I can understand how the various policies work. I have contributed previously but it’s easier to simplify my question about salary carryover then going into the details of what I’ve contributed so far. Thanks