Is this calculation wrong? One off payments into pension and annual allowance carry-back

Rhubarbium

yellow_barchetta said:

Sarahspangles said:

There’s something you’re not getting?

I pay into my SIPP every year, and as a higher rate tax payer I want to ensure I contribute enough that I’m not assessed at higher rate on any of my income.  But what is actually sitting in my SIPP is what I contributed plus tax relief. Every £10k was £8k from me and £2k from HMRC. And sitting in my non-SIPP savings is a bit more cash because I paid a bit less tax than I would have if I’d paid higher rate tax.

The max you can contribute is your taxable earnings. No carry forward. You also need to check you’re within the Annual Allowance, where there is the potential for carry forward.

Yes, you can bring forward unused annual allowances from the previous 3 years to allow you to contribute more in the current year if you have the funds to do so.  So if you want to you can put the non-SIPP savings into the SIPP too, if you have space in your annual allowance.  

Regardless of the unused annual allowances from the previous years you are still limited by your taxable earnings in the year.

yellow_barchetta

Yes, true.  Thanks for the correction.  

Sarahspangles

yellow_barchetta said:

They should then adjust your tax code to give you the additional tax relief. What they should do is increase the tax free amount in your tax code by half your intended gross contribution (assuming it all falls within higher rate). 

So tax free amount increased by £8333 which means you'll pay £3333 less tax over the tax year. If you were to do that now, half way through the tax year, you'd get about half in your next payslip and the rest month by month over the rest of the tax year. Assuming you have a normal cumulative tax code. If you make the pension contribution late in the tax year you should have got nearly all the additional tax relief by the time you pay it. 

And I do want to make use of some unused allowance from earlier years too, so I suspect a letter would be the way to go to avoid confusion.  I can forecast my HR tax band usage for this year, so I can limit any HR relief-linked deposits if I want to and then do payments / claims next year also if the HR band I've got available is too small to allow for all of my deposits to attract HR relief.  I think my HR band has about £30k of capacity this year, so if I did have a pot of £50k cash ready to be locked away in a fund, I think it would make sense to use £30k (gross) this year and the remainder next year, wouldn't it?  

Beware overcomplicating this for HMRC. You don’t need to do more than state you have made the contribution - they may ask for evidence - and would like an adjustment to your notice of coding.

You don’t need to tell them you have sufficient Annual Allowance in the current year or using carry forward. You just need to be confident you have.

Dazed_and_C0nfused

Sarahspangles said:

yellow_barchetta said:

They should then adjust your tax code to give you the additional tax relief. What they should do is increase the tax free amount in your tax code by half your intended gross contribution (assuming it all falls within higher rate). 

So tax free amount increased by £8333 which means you'll pay £3333 less tax over the tax year. If you were to do that now, half way through the tax year, you'd get about half in your next payslip and the rest month by month over the rest of the tax year. Assuming you have a normal cumulative tax code. If you make the pension contribution late in the tax year you should have got nearly all the additional tax relief by the time you pay it. 

And I do want to make use of some unused allowance from earlier years too, so I suspect a letter would be the way to go to avoid confusion.  I can forecast my HR tax band usage for this year, so I can limit any HR relief-linked deposits if I want to and then do payments / claims next year also if the HR band I've got available is too small to allow for all of my deposits to attract HR relief.  I think my HR band has about £30k of capacity this year, so if I did have a pot of £50k cash ready to be locked away in a fund, I think it would make sense to use £30k (gross) this year and the remainder next year, wouldn't it?  

Beware overcomplicating this for HMRC. You don’t need to do more than state you have made the contribution - they may ask for evidence - and would like an adjustment to your notice of coding.

You don’t need to tell them you have sufficient Annual Allowance in the current year or using carry forward. You just need to be confident you have.

Providing an estimate of your taxable earnings will be this year would be sensible as well (what you expect your P60 to show).

Yiu have a much better idea of what this is likely to be than HMRC could ever guess at!