DB Pension and TFLS Calculation Question

KevinTHFC

Thanks for the detailed reply Lowtrawler

I have updated your table with actual Pension and salary and have hopefully  done it right!

a) 10k (net 8k) based on 2024/25 (60k limit less 50k paid by company Salary 50k)

b) 28k (net 22.4k) from 2021/22 cfwd (40k limit less 12k paid by company Salary 32.5K)

c) 28k (net 22.4k) from 2022/23 cfwd (40k limit less 12k paid by company Salary 32.5K)

d) 10k (net 8k) from 2023/24 cfwd - (60k limit less 50k paid by company Salary 50k)

So presumably she could make a one off personal pension contribution of 60.8k which, with tax relief, will be  76k for the tax year 2024/25?

QrizB

KevinTHFC said:

So presumably she could make a one off personal pension contribution of 60.8k which, with tax relief, will be  76k for the tax year 2024/25?

Only if she has £76k gross of relevant income during 2024/25.

If she only has the £50k you've previously mentioned, she can only contribute £50k gross.

Dazed_and_C0nfused

KevinTHFC said:

Thanks for the detailed reply Lowtrawler

I have updated your table with actual Pension and salary and have hopefully  done it right!

a) 10k (net 8k) based on 2024/25 (60k limit less 50k paid by company Salary 50k)

b) 28k (net 22.4k) from 2021/22 cfwd (40k limit less 12k paid by company Salary 32.5K)

c) 28k (net 22.4k) from 2022/23 cfwd (40k limit less 12k paid by company Salary 32.5K)

d) 10k (net 8k) from 2023/24 cfwd - (60k limit less 50k paid by company Salary 50k)

So presumably she could make a one off personal pension contribution of 60.8k which, with tax relief, will be  76k for the tax year 2024/25?

You've said she earns £50k twice now so why do you think she can make a personal contribution greater than this and get tax relief on it all?

Lowtrawler

QrizB said:

KevinTHFC said:

So presumably she could make a one off personal pension contribution of 60.8k which, with tax relief, will be  76k for the tax year 2024/25?

Only if she has £76k gross of relevant income during 2024/25.

If she only has the £50k you've previously mentioned, she can only contribute £50k gross.

Exactly so. The most she can contribute this tax year is limited by her relevant earnings of £50k i.e she can make net payments of £40k.

That will fully utilise the 2024/25 and 2021/22 allowance leaving £16k from 2022/23 and £10k from 2023/24 which can potentially be used in the 2025/26 tax year - so, if in the 2025/26 tax year, your wife has the same company income and company pension contributions as in 2024/25, she would be able to make personal pension contributions of £36k Gross, £28.8k net (£10k 2025/26; £16k 2022/23 and £10k 2023/24).

If you really wanted to make it all happen in the current tax year, you would need to pay your wife a £26k bonus which would obviously attract employer and employee National Insurance costs and tax at 40% - although you get 20% tax credit on the personal pension payment and a further 20% back on her tax return and so only the National Insurance is a real cost. This will be offset by the Corporation Tax reduction on the bonus payment and employer National Insurance.

KevinTHFC

Thanks very much everyone.