£60K annual allowance pension contributions

NickPoole

I'm looking to maximise my contributions to AVC over next 2 years before finally retiring - I know I am limited to my pay or £60K (whichever is less), and can use some unused allowance from previous years - I''ve been doing some calcs but hard to be exact when I am in defined benefits main scheme and defined conts AVC.

So my question is -  I am aiming to get as close as possible to maximum but if I end up going over the top is is simply a matter of having to repay tax relief on the amount that I go over I go over the allowance, or will there be additional penalties?

DRS1

I think the answer is it all depends.  See below

PTM056110 - Annual allowance: tax charge: rate of tax charge: general - HMRC internal manual - GOV.UK

BTW if you do not earn more than £60k this tax year then unused relief from previous years is irrelevant

Albermarle

DRS1 said:

I think the answer is it all depends.  See below

PTM056110 - Annual allowance: tax charge: rate of tax charge: general - HMRC internal manual - GOV.UK

BTW if you do not earn more than £60k this tax year then unused relief from previous years is irrelevant

Although normally the £60K will include some element of employer contributions, so you could probably still make use of the full 60K even if you only earnt £55K ( or something around that )

Dazed_and_C0nfused

Albermarle said:

DRS1 said:

I think the answer is it all depends.  See below

PTM056110 - Annual allowance: tax charge: rate of tax charge: general - HMRC internal manual - GOV.UK

BTW if you do not earn more than £60k this tax year then unused relief from previous years is irrelevant

Although normally the £60K will include some element of employer contributions, so you could probably still make use of the full 60K even if you only earnt £55K ( or something around that )

Or a PIA is involved, as it will be here.

I''ve been doing some calcs but hard to be exact when I am in defined benefits main scheme and defined conts AVC

Sarahspangles

NickPoole said:

I'm looking to maximise my contributions to AVC over next 2 years before finally retiring - I know I am limited to my pay or £60K (whichever is less), and can use some unused allowance from previous years - I''ve been doing some calcs but hard to be exact when I am in defined benefits main scheme and defined conts AVC.

So my question is -  I am aiming to get as close as possible to maximum but if I end up going over the top is is simply a matter of having to repay tax relief on the amount that I go over I go over the allowance, or will there be additional penalties?

If you exceed your relevant UK earnings, then it’s essentially just an admin problem. I know because I did it. I contacted my SIPP provider with my earnings figure, they repaid part of a contribution to me and the accompanying relief to HMRC.

However you can’t ‘back out’ a payment that exceeds your Annual Allowance, so to contribute over £60k you must have carry forward available. As the calculation factors in a Pension Input Amount, likely higher than actual conts, the AA potentially becomes more of a limiting factor. Similar to your plans, I did this for two years, a third year would have been problematic as I almost no carry forward available.

Lorian

If you have no carry forward and you go over the £60k there is an extra box you need to fill in on your tax return to either pay the charge through the tax return or to tell HMRC that you have repaid the charge through the scheme pays route. You can only demand the scheme pays if the overpayment is more thank £2k.

I'm not expert on this but be very wary as if you do go over and have to pay this charge you will have contributed to the pension without tax relief but will have to pay tax on it at your nominal rate when you eventually withdraw it.

NickPoole

DRS1 said:

BTW if you do not earn more than £60k this tax year then unused relief from previous years is irrelevant

That's a bit worrying - after taking partial retirement I think my income from actual salary will be about £56-58K (depending upon Civil Service pay settlement)

Does that mean I can't use last year's and year before's where I was over £60K?

Dazed_and_C0nfused

NickPoole said:

DRS1 said:

BTW if you do not earn more than £60k this tax year then unused relief from previous years is irrelevant

That's a bit worrying - after taking partial retirement I think my income from actual salary will be about £56-58K (depending upon Civil Service pay settlement)

Does that mean I can't use last year's and year before's where I was over £60K?

With a defined benefit pension the contributions are irrelevant (for AA purposes), it's the pension input amount that counts.

https://www.civilservicepensionscheme.org.uk/your-pension/yearly-pension-update/pension-savings-statement/annual-allowance/

But irrespective of that it isn't really clear why you think you could use any unused annual allowance in the current tax year?

Linton

NickPoole said:

DRS1 said:

BTW if you do not earn more than £60k this tax year then unused relief from previous years is irrelevant

That's a bit worrying - after taking partial retirement I think my income from actual salary will be about £56-58K (depending upon Civil Service pay settlement)

Does that mean I can't use last year's and year before's where I was over £60K?

No, the £60K + carry-over and earned income limits are entirely separate.  There is no link between the two but both must be satisfied. The earned income limit only applies to the current tax year and only to you own personal contributions.

NickPoole

Thanks guys - I think I will be within limits (as SarahSpangles says for 2 years max) although devilish hard to work out. As I will take a large chunk of pensions at partial retirement that should reduce how much the pension benefit grows by for that years input. 

NickPoole

But irrespective of that it isn't really clear why you think you could use any unused annual allowance in the current tax year?

mmm - If I put say 80% of my salary into AVC there's a risk that that plus pension inputs will go above 60K so will need to venture into last 2 year's allowance of £60K

Sorry I wasn't clear