question about carry forward rule/unused allowance

deewillow

Hello, i'd like some clarification please on what counts as 'salary' in  the Carry Forward Rule.
I understand that you can make additional contributions to top up pensions in the last 3 tax years. But the maximum you can reach is either £60k or 100% of your salary?
I salary sacrifice a large % of my salary each month, so for the purposes of this annual salary calculation am I using my gross salary before any SS takes place? In which case I could top up to £60k. Or am I using the gross pay shown on my P60 for previous years? in which case its in the £40's so I would not be allowed to reach £60k.
My pension is managed through Aviva/my employer and I do not have any other SIPP etc. and no other income.
thanks for any help understanding the rules

NoMore

You completely misunderstand the rules.

There are two rules which affect Pension contributions and people often get them mixed up and misunderstand them so your not the first.

First rule is the Annual Allowance (AA) currently 60k per year, this is the maximum amount you can contribute from all sources to pensions in a single year. So this counts your own and your employer contributions and any tax relief. This is the limit than can be extended via up to the previous 3 years unused AA. Breaking this limit results in the AA charge.

The Second rule is that you are only entitled to Tax relief based on your relevant Uk earnings (Pension income and Rental Income don't count). Going above this will result in no Tax relief and that's usually a bad idea for your contributions because you are opening them up to being taxed twice.

From this you can see its quite common and easy to have a large AA (because you have 60k this year and all of the unused AA from the previous 3) but not enough relevant earnings to get the Tax relief to make personal contributions worthwhile.

From your post its not really clear if you can make use of AA carry forward at all.

zagfles

Short answer is you only need to worry about the annual allowance. The tax relief limit (ie 100% of earnings) is not an issue as you aren't getting (direct) tax relief as all your pension conts are sal sac. Your salary is irrelavent unless it's very high (~£200k+) when you might be affected by the AA taper. 

So just use an AA calculator like Unused Pension Carry Forward & Annual Allowance Calculator | HL 

Remember to include employer contributions. (I assume your pension is DC). 

Dazed_and_C0nfused

deewillow said:

Hello, i'd like some clarification please on what counts as 'salary' in  the Carry Forward Rule.
I understand that you can make additional contributions to top up pensions in the last 3 tax years. But the maximum you can reach is either £60k or 100% of your salary?
I salary sacrifice a large % of my salary each month, so for the purposes of this annual salary calculation am I using my gross salary before any SS takes place? In which case I could top up to £60k. Or am I using the gross pay shown on my P60 for previous years? in which case its in the £40's so I would not be allowed to reach £60k.
My pension is managed through Aviva/my employer and I do not have any other SIPP etc. and no other income.
thanks for any help understanding the rules

In addition to the other replies you can never add to a pension for a tax year that has already ended.

Carry forward of unused annual allowance just allows you, in certain situations, to contribute more in the current tax year.  It is not a contribution of the earlier year(s).

Linton

deewillow said:

Hello, i'd like some clarification please on what counts as 'salary' in  the Carry Forward Rule.
I understand that you can make additional contributions to top up pensions in the last 3 tax years. But the maximum you can reach is either £60k or 100% of your salary?
I salary sacrifice a large % of my salary each month, so for the purposes of this annual salary calculation am I using my gross salary before any SS takes place? In which case I could top up to £60k. Or am I using the gross pay shown on my P60 for previous years? in which case its in the £40's so I would not be allowed to reach £60k.
My pension is managed through Aviva/my employer and I do not have any other SIPP etc. and no other income.
thanks for any help understanding the rules

Your salary sacrifice is an employers contribution.  SS means that you have agreed to accept a higher employer's pension contribution in exchange for a lower gross salary. So your annual salary is after the SS reduction.

deewillow

Thanks for the replies and explanations above, very helpful.
Yes my pension is DC. I'll use the Carry Forward calculator to work out the unused AA from previous years and then speak to Aviva to see how best to make use of these.