Calculating my annual allowance - savings interest? Redundancy?

What_time_is_it

One other thing I should add, due to salary sacrifice being used on my pension contributions this year, my “taxable salary” on my P45 is considerably less than £35k. Does this have any impact on things?

What_time_is_it

hugheskevi said:

What_time_is_it said:

if I do accidentally go over my Annual Allowance this year (because of the estimate on my DB pension for the year), what happens then? Is there a fine? Or do I just have to repay the tax back for the amount over my annual allowance? And how is this collected by HMRC?

Finally, for 2025/26 if I do not work at all, and only receive income from savings interest, dividends, and sales of personal items, is the most I can pay into a SIPP capped at £2,880?

Assuming you have not accessed a pension previously and so are not subject to Money Purchase Annual Allowance, and that your income does not exceed £200,000 and so you are not affected by the tapered annual allowance, your allowance would be £60,000.

If you went over £60,000 you would look to see if you have unused allowance from the past 3 years to carry forward. If unused allowance is available, that increases your annual allowance from £60,000 to whatever the amount of £60,000 plus unused allowance from last 3 years is.

If despite carry forward you still exceeded the limit, you then pay tax at your marginal rate on the amount by which you have exceeded the limit plus carry-forward. This is done via self-assessment.

The most you can pay into a SIPP when you have no earnings that attract relief is £3,600 (gross). To do this, you would make a payment of £2,880 (net) which is grossed up for basic rate relief by the provider.

Note that all calculations for annual allowance and earnings that attract tax relief should be calculated on a gross basis.

Thanks. But the most I can contribute this year is restricted to my income this year, right? So lower than £60k and probably around £35k?

And next year it would be restricted to £3,600 (£2,880 plus the £720 tax relief), so again not £60k?

I find this quite confusing!!!

hugheskevi

What_time_is_it said:

One other thing I should add, due to salary sacrifice being used on my pension contributions this year, my “taxable salary” on my P45 is considerably less than £35k. Does this have any impact on things?

Yes. Your income is not £35,000. You entered into a contractual agreement to reduce your income in exchange for employer pension contributions. Your income is whatever your taxable income is.

Employer contributions have no relevance for earnings that attract tax relief, but do count toward Annual Allowance in DC schemes. In DB schemes neither employee nor employer contributions have any relevance, it is the pension input amount that measures the increase in benefits which is used for Annual Allowance.

What_time_is_it said:

hugheskevi said:

What_time_is_it said:

if I do accidentally go over my Annual Allowance this year (because of the estimate on my DB pension for the year), what happens then? Is there a fine? Or do I just have to repay the tax back for the amount over my annual allowance? And how is this collected by HMRC?

Finally, for 2025/26 if I do not work at all, and only receive income from savings interest, dividends, and sales of personal items, is the most I can pay into a SIPP capped at £2,880?

Assuming you have not accessed a pension previously and so are not subject to Money Purchase Annual Allowance, and that your income does not exceed £200,000 and so you are not affected by the tapered annual allowance, your allowance would be £60,000.

If you went over £60,000 you would look to see if you have unused allowance from the past 3 years to carry forward. If unused allowance is available, that increases your annual allowance from £60,000 to whatever the amount of £60,000 plus unused allowance from last 3 years is.

If despite carry forward you still exceeded the limit, you then pay tax at your marginal rate on the amount by which you have exceeded the limit plus carry-forward. This is done via self-assessment.

The most you can pay into a SIPP when you have no earnings that attract relief is £3,600 (gross). To do this, you would make a payment of £2,880 (net) which is grossed up for basic rate relief by the provider.

Note that all calculations for annual allowance and earnings that attract tax relief should be calculated on a gross basis.

Thanks. But the most I can contribute this year is restricted to my income this year, right? So lower than £60k and probably around £35k?

And next year it would be restricted to £3,600 (£2,880 plus the £720 tax relief), so again not £60k?

I find this quite confusing!!!

The most you can receive tax relief on are your earnings that attract tax relief, subject to the Annual Allowance. You may have total pension contributions that are more than your income due to employer contributions.

From what you have said, the Annual Allowance is probably not relevant.

What_time_is_it

Ok, I think this is starting to make a little more sense now. 

I salary sacrificed as much as I could this year into my DC and DB work pension (it’s a hybrid scheme). So, from what you are saying, I guess that the relevant info is:

Total income - £35,000
Total salary sacrificed into pensions - £22,500
of which around £2,500 into DB pension, and £20,000 into DC pension
Total taxable income - £12,500
Employer contribution into DB pension only.
i am now no longer working and will receive no further income this tax year apart from savings interest and the sale of some personal items 

From this, is is possible to work out what the maximum I can contribute to a SIPP before the end of this tax year is?

QrizB

I'd say 80% of £12500, so £10000. Unless there's anything else you want to tell us about!

Edit to add: note that if you include your £30k redundancy payment, you're already close to having used your £60k AA for the year. You've probably got carry-forward available. Have your pension contributions in previous years always been much smaller than this year?

What_time_is_it

QrizB said:

I'd say 80% of £12500, so £10000. Unless there's anything else you want to tell us about!

But I’ve already paid in way more that that into my work pension during this current tax year - £20,000 into the DC element and (estimated value) £8,000 into the DB element!

Edit - regarding carry forward. I’ve never earned over £60k in a single year, but so have made significant salary sacrifice AVC payments in previous years too. My previous pension statements show AA used over the last 5 years as varying between £17k and £37k. The last 3 years AA used were £21k, £29k and £37k respectively.

Dazed_and_C0nfused

What_time_is_it said:

QrizB said:

I'd say 80% of £12500, so £10000. Unless there's anything else you want to tell us about!

But I’ve already paid in way more that that into my work pension during this current tax year - £20,000 into the DC element and (estimated value) £8,000 into the DB element!

A few posts you were telling us you had sacrificed income in return for employer contributions.

Which is it????

What_time_is_it

Dazed_and_C0nfused said:

What_time_is_it said:

QrizB said:

I'd say 80% of £12500, so £10000. Unless there's anything else you want to tell us about!

But I’ve already paid in way more that that into my work pension during this current tax year - £20,000 into the DC element and (estimated value) £8,000 into the DB element!

A few posts you were telling us you had sacrificed income in return for employer contributions.

Which is it????

Sorry. I find the terminology a little confusing. When I say “I’ve contributed” I mean that I have salary sacrificed those amounts into my pension. I guess that means that my employer is the one who has contributed, and not me? 

As you tell, I find this hard to navigate! 

Dazed_and_C0nfused

What_time_is_it said:

Dazed_and_C0nfused said:

What_time_is_it said:

QrizB said:

I'd say 80% of £12500, so £10000. Unless there's anything else you want to tell us about!

But I’ve already paid in way more that that into my work pension during this current tax year - £20,000 into the DC element and (estimated value) £8,000 into the DB element!

A few posts you were telling us you had sacrificed income in return for employer contributions.

Which is it????

Sorry. I find the terminology a little confusing. When I say “I’ve contributed” I mean that I have salary sacrificed those amounts into my pension. I guess that means that my employer is the one who has contributed, and not me? 

As you tell, I find this hard to navigate! 

Salary sacrifice means you aren't paying into your pension, you agree to have a smaller salary and your employer pays more into your pension.

You don't get any tax relief on employer contributions.  But as you sacrificed the salary you don't pay tax or NI on it.

QrizB

What_time_is_it said:

Dazed_and_C0nfused said:

What_time_is_it said:

QrizB said:

I'd say 80% of £12500, so £10000. Unless there's anything else you want to tell us about!

But I’ve already paid in way more that that into my work pension during this current tax year - £20,000 into the DC element and (estimated value) £8,000 into the DB element!

A few posts you were telling us you had sacrificed income in return for employer contributions.

Which is it????

Sorry. I find the terminology a little confusing. When I say “I’ve contributed” I mean that I have salary sacrificed those amounts into my pension. I guess that means that my employer is the one who has contributed, and not me?

Salsac contributions are employer contributions.

So far, you've not mentioned a single penny of employee or personal contributions to a pension.