Carry forward pension allowances.

BattyJ

Hi All

A couple of queries with regards the carry forward pension allowances, if anyone can help it would be appreciated.

I was working overseas for many years and came back to the UK in late 2020 due to redundancy during the COVID pandemic.

I was out of work from my return in 2020 until April 2022.
I used all the 2022-2023 pension allowance of £40K
I used all the 2023-2024 pension allowance of £60k
I have gone slightly over the 2024-2025 allowance of £60k due to some overtime.

I believe I can carry forward the pension allowance for 3 years not including this current year. So I would be able to carry the overpayment of 2024-2025 back into the tax year 2021-2022, when I had no income. 

However I believe I would have been working  or had to have had a QROP pension in 2021-2022 to do this carry forward on my pension allowance. I wasn’t working in 2021-2022 and I just had a SIPP not a QROP.

I believe however there is an allowance of £2880 (£3600 after tax at 20% is added) even if you were not working. Is this correct and if so can I use that to cover the slight over payment into my 2024-2025 pension.

Thanks all

NoMore

To your second point, no the £2880 is related to the tax relief you can claim with no relevant earnings and is nothing to do with Annual Allowance carry forward.

Before 2022 did you have any pension in the UK ? Even if the SIPP was open but not contributing during your abroad years then you qualify for using the allowance for 21/22. Any pension you had in the uk would allow this, so any DC or DB pension you have ever had in the UK before 2020.

Marcon

BattyJ said:

Hi All

A couple of queries with regards the carry forward pension allowances, if anyone can help it would be appreciated.

I was working overseas for many years and came back to the UK in late 2020 due to redundancy during the COVID pandemic.

I was out of work from my return in 2020 until April 2022.
I used all the 2022-2023 pension allowance of £40K
I used all the 2023-2024 pension allowance of £60k
I have gone slightly over the 2024-2025 allowance of £60k due to some overtime.

I believe I can carry forward the pension allowance for 3 years not including this current year. 1. So I would be able to carry the overpayment of 2024-2025 back into the tax year 2021-2022, when I had no income. 

2. However I believe I would have been working  or had to have had a QROP pension in 2021-2022 to do this carry forward on my pension allowance. I wasn’t working in 2021-2022 and I just had a SIPP not a QROP.

3. I believe however there is an allowance of £2880 (£3600 after tax at 20% is added) even if you were not working. Is this correct and if so can I use that to cover the slight over payment into my 2024-2025 pension.

Thanks all

1. You can only ever get tax relief on pension contributions in the tax year in which the contribution is actually paid. If your earnings in the current tax year are sufficient to cover the total contributions (including employer contributions and any tax relief on personal contributions) paid in this tax year (24/25), then yes - 21-22 is in scope. Your income/whether or not you were working in 21-22 isn't relevant for carry forward. 

2. If you were a member of a SIPP during 21-22 that'll do the trick regardless of whether you paid into it, were a pensioner of the scheme, or a deferred/active member - you just had to be some sort of member of a UK registered pension scheme (or a QROPS) for any years to which you wish carry forward to apply. 

3. As explained above, you need to look at your earnings in the tax year in which you make the contributions. You don't get that on top of your £60K allowance 'because you weren't working in 21-22', but it doesn't sound as if you need it.

SacredStephan

NoMore said:

To your second point, no the £2880 is related to the tax relief you can claim with no relevant earnings

It's the limit of personal pension contributions you can make in a tax year where your relevant earnings are under £3600.

NoMore

SacredStephan said:

NoMore said:

To your second point, no the £2880 is related to the tax relief you can claim with no relevant earnings

It's the limit of personal pension contributions you can make in a tax year where your relevant earnings are under £3600.

No it’s the limit of contributions where you can claim tax relief with no relevant earnings which is what I said. You can pay more in if you want but you’re not entitled to tax relief on amounts above it. 

Too many people think this is a hard limit, it’s not. However going above it is not advisable for the majority due to it likely costing you more in tax. 

Marcon

NoMore said:

SacredStephan said:

NoMore said:

To your second point, no the £2880 is related to the tax relief you can claim with no relevant earnings

It's the limit of personal pension contributions you can make in a tax year where your relevant earnings are under £3600.

No it’s the limit of contributions where you can claim tax relief with no relevant earnings which is what I said. You can pay more in if you want but you’re not entitled to tax relief on amounts above it. 

Too many people think this is a hard limit, it’s not. However going above it is not advisable for the majority due to it likely costing you more in tax. 

...and the little matter of many personal pension schemes not being willing to accept contributions which aren't eligible for tax relief... Several warn that they will 'close down' any personal pension where the customer attempts/accidentally does so.

BattyJ

Marcon said:

BattyJ said:

Hi All

A couple of queries with regards the carry forward pension allowances, if anyone can help it would be appreciated.

I was working overseas for many years and came back to the UK in late 2020 due to redundancy during the COVID pandemic.

I was out of work from my return in 2020 until April 2022.
I used all the 2022-2023 pension allowance of £40K
I used all the 2023-2024 pension allowance of £60k
I have gone slightly over the 2024-2025 allowance of £60k due to some overtime.

I believe I can carry forward the pension allowance for 3 years not including this current year. 1. So I would be able to carry the overpayment of 2024-2025 back into the tax year 2021-2022, when I had no income. 

2. However I believe I would have been working  or had to have had a QROP pension in 2021-2022 to do this carry forward on my pension allowance. I wasn’t working in 2021-2022 and I just had a SIPP not a QROP.

3. I believe however there is an allowance of £2880 (£3600 after tax at 20% is added) even if you were not working. Is this correct and if so can I use that to cover the slight over payment into my 2024-2025 pension.

Thanks all

1. You can only ever get tax relief on pension contributions in the tax year in which the contribution is actually paid. If your earnings in the current tax year are sufficient to cover the total contributions (including employer contributions and any tax relief on personal contributions) paid in this tax year (24/25), then yes - 21-22 is in scope. Your income/whether or not you were working in 21-22 isn't relevant for carry forward. 

2. If you were a member of a SIPP during 21-22 that'll do the trick regardless of whether you paid into it, were a pensioner of the scheme, or a deferred/active member - you just had to be some sort of member of a UK registered pension scheme (or a QROPS) for any years to which you wish carry forward to apply. 

3. As explained above, you need to look at your earnings in the tax year in which you make the contributions. You don't get that on top of your £60K allowance 'because you weren't working in 21-22', but it doesn't sound as if you need it.

So, my understanding now, is that my 24-25 salary more than covers the total contributions made in 24-25 even with the overpayment. Thus 21-22 comes into the picture.

Secondly because I had a SIPP in 21-22, even thought I wasn’t paying into it (since I wasn’t working that financial year) I can carry forward the  annual allowance of £40k from 21-22. It is not limited by the £2880 non working allowance. 

Would that be correct?

Also since I made the overpayment in 24-25, and I am a higher rate tax payer, would I get relief at 40% on the 24-25 over payment or only at 20% since its using carry forward from 21-22 when I was a lower rate tax payer?

Marcon

BattyJ said:

Marcon said:

BattyJ said:

Hi All

A couple of queries with regards the carry forward pension allowances, if anyone can help it would be appreciated.

I was working overseas for many years and came back to the UK in late 2020 due to redundancy during the COVID pandemic.

I was out of work from my return in 2020 until April 2022.
I used all the 2022-2023 pension allowance of £40K
I used all the 2023-2024 pension allowance of £60k
I have gone slightly over the 2024-2025 allowance of £60k due to some overtime.

I believe I can carry forward the pension allowance for 3 years not including this current year. 1. So I would be able to carry the overpayment of 2024-2025 back into the tax year 2021-2022, when I had no income. 

2. However I believe I would have been working  or had to have had a QROP pension in 2021-2022 to do this carry forward on my pension allowance. I wasn’t working in 2021-2022 and I just had a SIPP not a QROP.

3. I believe however there is an allowance of £2880 (£3600 after tax at 20% is added) even if you were not working. Is this correct and if so can I use that to cover the slight over payment into my 2024-2025 pension.

Thanks all

1. You can only ever get tax relief on pension contributions in the tax year in which the contribution is actually paid. If your earnings in the current tax year are sufficient to cover the total contributions (including employer contributions and any tax relief on personal contributions) paid in this tax year (24/25), then yes - 21-22 is in scope. Your income/whether or not you were working in 21-22 isn't relevant for carry forward. 

2. If you were a member of a SIPP during 21-22 that'll do the trick regardless of whether you paid into it, were a pensioner of the scheme, or a deferred/active member - you just had to be some sort of member of a UK registered pension scheme (or a QROPS) for any years to which you wish carry forward to apply. 

3. As explained above, you need to look at your earnings in the tax year in which you make the contributions. You don't get that on top of your £60K allowance 'because you weren't working in 21-22', but it doesn't sound as if you need it.

So, my understanding now, is that my 24-25 salary more than covers the total contributions made in 24-25 even with the overpayment. Thus 21-22 comes into the picture.

Secondly because I had a SIPP in 21-22, even thought I wasn’t paying into it (since I wasn’t working that financial year) I can carry forward the  annual allowance of £40k from 21-22. It is not limited by the £2880 non working allowance. 

Would that be correct?

Also since I made the overpayment in 24-25, and I am a higher rate tax payer, would I get relief at 40% on the 24-25 over payment or only at 20% since its using carry forward from 21-22 when I was a lower rate tax payer?

Correct.

You'll get tax relief based on your income in the tax year in which you make the contribution. Basic rate relief will be claimed by your SIPP provider and added to your pot. You will need to claim any higher rate relief either on your self assessment tax return, or direct from HMRC.

BattyJ

Marcon said:

BattyJ said:

Marcon said:

BattyJ said:

Hi All

A couple of queries with regards the carry forward pension allowances, if anyone can help it would be appreciated.

I was working overseas for many years and came back to the UK in late 2020 due to redundancy during the COVID pandemic.

I was out of work from my return in 2020 until April 2022.
I used all the 2022-2023 pension allowance of £40K
I used all the 2023-2024 pension allowance of £60k
I have gone slightly over the 2024-2025 allowance of £60k due to some overtime.

I believe I can carry forward the pension allowance for 3 years not including this current year. 1. So I would be able to carry the overpayment of 2024-2025 back into the tax year 2021-2022, when I had no income. 

2. However I believe I would have been working  or had to have had a QROP pension in 2021-2022 to do this carry forward on my pension allowance. I wasn’t working in 2021-2022 and I just had a SIPP not a QROP.

3. I believe however there is an allowance of £2880 (£3600 after tax at 20% is added) even if you were not working. Is this correct and if so can I use that to cover the slight over payment into my 2024-2025 pension.

Thanks all

1. You can only ever get tax relief on pension contributions in the tax year in which the contribution is actually paid. If your earnings in the current tax year are sufficient to cover the total contributions (including employer contributions and any tax relief on personal contributions) paid in this tax year (24/25), then yes - 21-22 is in scope. Your income/whether or not you were working in 21-22 isn't relevant for carry forward. 

2. If you were a member of a SIPP during 21-22 that'll do the trick regardless of whether you paid into it, were a pensioner of the scheme, or a deferred/active member - you just had to be some sort of member of a UK registered pension scheme (or a QROPS) for any years to which you wish carry forward to apply. 

3. As explained above, you need to look at your earnings in the tax year in which you make the contributions. You don't get that on top of your £60K allowance 'because you weren't working in 21-22', but it doesn't sound as if you need it.

So, my understanding now, is that my 24-25 salary more than covers the total contributions made in 24-25 even with the overpayment. Thus 21-22 comes into the picture.

Secondly because I had a SIPP in 21-22, even thought I wasn’t paying into it (since I wasn’t working that financial year) I can carry forward the  annual allowance of £40k from 21-22. It is not limited by the £2880 non working allowance. 

Would that be correct?

Also since I made the overpayment in 24-25, and I am a higher rate tax payer, would I get relief at 40% on the 24-25 over payment or only at 20% since its using carry forward from 21-22 when I was a lower rate tax payer?

Correct.

You'll get tax relief based on your income in the tax year in which you make the contribution. Basic rate relief will be claimed by your SIPP provider and added to your pot. You will need to claim any higher rate relief either on your self assessment tax return, or direct from HMRC.

Thank you so much for your help, much appreciated.

BattyJ

Marcon said:

NoMore said:

SacredStephan said:

NoMore said:

To your second point, no the £2880 is related to the tax relief you can claim with no relevant earnings

It's the limit of personal pension contributions you can make in a tax year where your relevant earnings are under £3600.

No it’s the limit of contributions where you can claim tax relief with no relevant earnings which is what I said. You can pay more in if you want but you’re not entitled to tax relief on amounts above it. 

Too many people think this is a hard limit, it’s not. However going above it is not advisable for the majority due to it likely costing you more in tax. 

...and the little matter of many personal pension schemes not being willing to accept contributions which aren't eligible for tax relief... Several warn that they will 'close down' any personal pension where the customer attempts/accidentally does so.

That is shocking!

Marcon

BattyJ said:

Marcon said:

NoMore said:

SacredStephan said:

NoMore said:

To your second point, no the £2880 is related to the tax relief you can claim with no relevant earnings

It's the limit of personal pension contributions you can make in a tax year where your relevant earnings are under £3600.

No it’s the limit of contributions where you can claim tax relief with no relevant earnings which is what I said. You can pay more in if you want but you’re not entitled to tax relief on amounts above it. 

Too many people think this is a hard limit, it’s not. However going above it is not advisable for the majority due to it likely costing you more in tax. 

...and the little matter of many personal pension schemes not being willing to accept contributions which aren't eligible for tax relief... Several warn that they will 'close down' any personal pension where the customer attempts/accidentally does so.

That is shocking!

Not really. It involves them in a load of extra admin and possibly severe penalties if they don't pick up the issue/treat it seriously - so can't really blame them for expecting customers to abide by the T&C of the contract...