Carry Forward contribution on SIPP

GenX0212

From  https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward

"For defined contribution pensions, to qualify for tax relief: 

• your total contributions must be less than (or equal to) the amount you earn, and 
• all payments in, including any from you and your employer, must not be higher than your annual allowance – £60,000 for most. "

"You can usually use carry forward if you:

• have used up your current annual allowance
• were a member of a registered pension scheme during each tax year you want to carry forward, not including the State Pension 
• have not triggered the money purchase annual allowance (MPAA) by taking taxable money flexibly from a defined contribution pension. "

"The standard annual allowance for the 2025/26 tax year is £60,000. It might also be: 

• between £10,000 and £59,999 if you earn over £200,000 and the tapered annual allowance applies, or 
• £10,000 if you’ve taken money from a defined contribution pension (apart from tax-free lump sums) and the money purchase annual allowance (MPAA) has been triggered"

So in simple terms (and most likely for the majority of people asking the question) to qualify for tax relief:

• your total contributions must be less than (or equal) to the amount you earn
• you can then only use carry forwards if you have used up your current allowance (£60k for the majority)

Marcon

nomorekids said:

May I jump on board and ask a simple, I hope its a simple question. 

Not paid into my SIPP for a number of years and earn from employment around £15000, another £20000 gross from rental and pay about £1000 a year into work place pensions. Always pay basic rate tax and for last couple of years had to pay tax on savings less £1000 as I've blown the limit slightly.

This year then its my understanding I can pay £42000 into my SIPP? 

I think I've just worked out where the £42K comes from - £15K x 3, minus £3K paid into your workplace pension?

Rental income doesn't normally count as 'relevant earnings' so you can disregard that completely. The most you can pay into your SIPP this year is £14K gross (assuming the £1K paid to your workplace pension is also a gross figure). There's no carry forward from the previous 3 tax years because your earnings in the tax year in which you make the contribution are only £15K.

That £14K assumes your employer hasn't shovelled masses of cash (taking you over £60K when your own contributions including tax relief are added) into your workplace pension, which seems unlikely!

zagfles

GenX0212 said:

From  https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward

"For defined contribution pensions, to qualify for tax relief: 

• your total contributions must be less than (or equal to) the amount you earn, and 
• all payments in, including any from you and your employer, must not be higher than your annual allowance – £60,000 for most. "

"You can usually use carry forward if you:

• have used up your current annual allowance
• were a member of a registered pension scheme during each tax year you want to carry forward, not including the State Pension 
• have not triggered the money purchase annual allowance (MPAA) by taking taxable money flexibly from a defined contribution pension. "

"The standard annual allowance for the 2025/26 tax year is £60,000. It might also be: 

• between £10,000 and £59,999 if you earn over £200,000 and the tapered annual allowance applies, or 
• £10,000 if you’ve taken money from a defined contribution pension (apart from tax-free lump sums) and the money purchase annual allowance (MPAA) has been triggered"

So in simple terms (and most likely for the majority of people asking the question) to qualify for tax relief:

• your total contributions must be less than (or equal) to the amount you earn
• you can then only use carry forwards if you have used up your current allowance (£60k for the majority)

The important points here are that the first bullet "your total contributions..." means just yours, ie employee/personal plus any tax relief added. It does not include employer contributions. 

The second includes everything ie employer conts as well. 

It's not totally clear because it then goes on to talk about carry forwards without making it clear it applies only to the second bullet only not first. 

GenX0212

zagfles said:

GenX0212 said:

From  https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward

"For defined contribution pensions, to qualify for tax relief: 

• your total contributions must be less than (or equal to) the amount you earn, and 
• all payments in, including any from you and your employer, must not be higher than your annual allowance – £60,000 for most. "

"You can usually use carry forward if you:

• have used up your current annual allowance
• were a member of a registered pension scheme during each tax year you want to carry forward, not including the State Pension 
• have not triggered the money purchase annual allowance (MPAA) by taking taxable money flexibly from a defined contribution pension. "

"The standard annual allowance for the 2025/26 tax year is £60,000. It might also be: 

• between £10,000 and £59,999 if you earn over £200,000 and the tapered annual allowance applies, or 
• £10,000 if you’ve taken money from a defined contribution pension (apart from tax-free lump sums) and the money purchase annual allowance (MPAA) has been triggered"

So in simple terms (and most likely for the majority of people asking the question) to qualify for tax relief:

• your total contributions must be less than (or equal) to the amount you earn
• you can then only use carry forwards if you have used up your current allowance (£60k for the majority)

The important points here are that the first bullet "your total contributions..." means just yours, ie employee/personal plus any tax relief added. It does not include employer contributions. 

The second includes everything ie employer conts as well. 

It's not totally clear because it then goes on to talk about carry forwards without making it clear it applies only to the second bullet only not first. 

I'm not exactly clear what you are driving at.

Are you thinking of an example let's say where employee earns £55k, they contribute everything to the pension and their employer is also contributing > £5k into the pension taking the total over the £60k threshold and thus being eligible to use carry forwards from the previous years allowance?

Marcon

zagfles said:

Marcon said:

zagfles said:

nomorekids said:

May I jump on board and ask a simple, I hope its a simple question. 

Not paid into my SIPP for a number of years and earn from employment around £15000, another £20000 gross from rental and pay about £1000 a year into work place pensions. Always pay basic rate tax and for last couple of years had to pay tax on savings less £1000 as I've blown the limit slightly.

This year then its my understanding I can pay £42000 into my SIPP? 

OMG. Why do I bother. Read the second paragraph of my first post. I really don't know how to make it any clearer. Perhaps someone else can. 

I think it's your second paragraph that's caused confusion, especially if that's the only bit OP read:

For a start, there are two constraints on pension contributions. Firstly, the tax relief limit, which is 100% of relevant earnings, or £3600 if more. This apples to everyone, and there is no carry forwards for ANYONE on this limit. It doesn't matter how much you earn. If you earn 0, or less than £3600, you can contribute £3600 gross (£2880 net). If you earn £20,000, you can contribute £20,000 gross. If you earn £80,000, you can contribute £80,000 gross. If you earn £150,000 you can contribute £150,000 gross. NOBODY can carry forwards the tax relief limit.

Feel free to rephrase. People obviously aren't understanding. I thought I was clear that if you earn eg £20k you can't contribute more than £20k and there is no carry forwards. 

When people don't understand something, it's often because the explanation isn't adequately clear. To the novice reader, you've contradicted yourself and confused the issue as a result:

Firstly, the tax relief limit, which is 100% of relevant earnings, or £3600 if more. ....If you earn £150,000 you can contribute £150,000 gross. NOBODY can carry forwards the tax relief limit.

You say you've been explaining this point for 10 years, but I wonder how many people actually understood what you explained? I'd expect you to have a model answer after a decade of polishing it!

Also worth pointing out that actually there is no limit on pension contributions...just a limit on the amount of tax relief.

zagfles

GenX0212 said:

zagfles said:

GenX0212 said:

From  https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward

"For defined contribution pensions, to qualify for tax relief: 

• your total contributions must be less than (or equal to) the amount you earn, and 
• all payments in, including any from you and your employer, must not be higher than your annual allowance – £60,000 for most. "

"You can usually use carry forward if you:

• have used up your current annual allowance
• were a member of a registered pension scheme during each tax year you want to carry forward, not including the State Pension 
• have not triggered the money purchase annual allowance (MPAA) by taking taxable money flexibly from a defined contribution pension. "

"The standard annual allowance for the 2025/26 tax year is £60,000. It might also be: 

• between £10,000 and £59,999 if you earn over £200,000 and the tapered annual allowance applies, or 
• £10,000 if you’ve taken money from a defined contribution pension (apart from tax-free lump sums) and the money purchase annual allowance (MPAA) has been triggered"

So in simple terms (and most likely for the majority of people asking the question) to qualify for tax relief:

• your total contributions must be less than (or equal) to the amount you earn
• you can then only use carry forwards if you have used up your current allowance (£60k for the majority)

The important points here are that the first bullet "your total contributions..." means just yours, ie employee/personal plus any tax relief added. It does not include employer contributions. 

The second includes everything ie employer conts as well. 

It's not totally clear because it then goes on to talk about carry forwards without making it clear it applies only to the second bullet only not first. 

I'm not exactly clear what you are driving at.

Are you thinking of an example let's say where employee earns £55k, they contribute everything to the pension and their employer is also contributing > £5k into the pension taking the total over the £60k threshold and thus being eligible to use carry forwards from the previous years allowance?

Not really. Just pointing out what I pointed out, ie clarifying. Maybe I haven't. We do get people on here saying stuff like "I sal sac'ed £30k of my £55k salary into my pension taking my taxable income down to £25k so have I exceeded the tax relief limit". No, because of the first sentence I wrote in the PP. 

zagfles

Marcon said:

zagfles said:

Marcon said:

zagfles said:

nomorekids said:

May I jump on board and ask a simple, I hope its a simple question. 

Not paid into my SIPP for a number of years and earn from employment around £15000, another £20000 gross from rental and pay about £1000 a year into work place pensions. Always pay basic rate tax and for last couple of years had to pay tax on savings less £1000 as I've blown the limit slightly.

This year then its my understanding I can pay £42000 into my SIPP? 

OMG. Why do I bother. Read the second paragraph of my first post. I really don't know how to make it any clearer. Perhaps someone else can. 

I think it's your second paragraph that's caused confusion, especially if that's the only bit OP read:

For a start, there are two constraints on pension contributions. Firstly, the tax relief limit, which is 100% of relevant earnings, or £3600 if more. This apples to everyone, and there is no carry forwards for ANYONE on this limit. It doesn't matter how much you earn. If you earn 0, or less than £3600, you can contribute £3600 gross (£2880 net). If you earn £20,000, you can contribute £20,000 gross. If you earn £80,000, you can contribute £80,000 gross. If you earn £150,000 you can contribute £150,000 gross. NOBODY can carry forwards the tax relief limit.

Feel free to rephrase. People obviously aren't understanding. I thought I was clear that if you earn eg £20k you can't contribute more than £20k and there is no carry forwards. 

When people don't understand something, it's often because the explanation isn't adequately clear. To the novice reader, you've contradicted yourself and confused the issue as a result:

Firstly, the tax relief limit, which is 100% of relevant earnings, or £3600 if more. ....If you earn £150,000 you can contribute £150,000 gross. NOBODY can carry forwards the tax relief limit.

You say you've been explaining this point for 10 years, but I wonder how many people actually understood what you explained? I'd expect you to have a model answer after a decade of polishing it!

Also worth pointing out that actually there is no limit on pension contributions...just a limit on the amount of tax relief.

Obviously not. There is no contradiction whatsoever in what you quoted, IMO. I'm taking purely about the tax relief limit, "Firstly, the tax relief limit...". So where's the contradiction?

But you're right, no point banging my head on a brick wall when even in the same thread I've done a long explanation someone comes on having totally misunderstood it or not bothered to read it or just got confused. Feel free to explain it better. Go for it. Provide a model answer. You understand it don't you.

But it seems either nobody here successfully has, or people come on here asking questions without bothering to have searched for similar questions asked in the past. 

I really don't think this is hard. Some aspects of finance are hard. This is relatively simple. There are two separate limits to the amount you can put into a pension without adverse tax effects, they are different legislation with different rules, and difference consequences and possible mitigations when exceeding the limits. They need to be considered separately. If people looked at them separately, it would all become clear. But you get utter drivel trying to combine two limits into one simple neat one liner. It can't be done. 

This link from the Pru explains it for financial advisers. Who rarely seem to understand the rules any better than the people they're supposedly advising:
Tax Relief and Annual Allowance | M&G Wealth Adviser