Topping up my SIPP using unused allowances from previous 3 years pension contributions

ajbennett

I have received a small inheritance & I hoped that I could use it to top up my SIPP using the unused pension allowances from my last 3 years of PAYE & SIPP pension contributions.

I earn £20K/a and I know can only top up to that amount this year, but I have more to invest so checked the HMRC website:

You will not be taxed on pension savings over your annual allowance if you have enough unused annual allowance from previous years to carry forward. You can carry forward unused allowance from the 3 previous tax years.

This annual allowance only applies to pension savings made to your UK registered pension schemes, or to overseas schemes where either you or your employer qualifies for UK tax relief.

So my understanding is that this is possible, but I am not sure if I can do it though my SIPP or whether I somehow have to persuade my employer/ company to do this.

On further investigation I found this advice on the MSE Pensions: Everything you need to know for retirement - MSE webpage. This gives examples that imply you are only entitles to do this if you are a higher rate tax payer, earning over £60k:

6) You can ‘carry forward’ unused allowances from the three previous tax years. This is mostly useful for larger earners who want to put in a big lump sum (maybe due to an inheritance or a big bonus) above the usual £60,000 annual cap

If you had a private or workplace pension open, yet hadn’t used your maximum allowance in any of the three previous tax years, you can bring it forward and use it this year – putting in a maximum of this year's earnings. 

Can anyone clarify if I can used the last 3 years to add to my SIPP, please?

Aylesbury_Duck

In principle, you could use your SIPP.  As for unused allowances, the last two years' allowances were £60k and in 2022-23 the allowance was £40k, but I think that is all moot for you because you can't put in more than this year's earnings, anyway.  It's not that only higher earners are entitled to make use of previous years' unspent allowances, it's that they're the only people who can practically do it.

Marcon

ajbennett said:

I have received a small inheritance & I hoped that I could use it to top up my SIPP using the unused pension allowances from my last 3 years of PAYE & SIPP pension contributions.

I earn £20K/a and I know can only top up to that amount this year, but I have more to invest so checked the HMRC website:

You will not be taxed on pension savings over your annual allowance if you have enough unused annual allowance from previous years to carry forward. You can carry forward unused allowance from the 3 previous tax years.

This annual allowance only applies to pension savings made to your UK registered pension schemes, or to overseas schemes where either you or your employer qualifies for UK tax relief.

So my understanding is that this is possible, but I am not sure if I can do it though my SIPP or whether I somehow have to persuade my employer/ company to do this.

On further investigation I found this advice on the MSE Pensions: Everything you need to know for retirement - MSE webpage. This gives examples that imply you are only entitles to do this if you are a higher rate tax payer, earning over £60k:

6) You can ‘carry forward’ unused allowances from the three previous tax years. This is mostly useful for larger earners who want to put in a big lump sum (maybe due to an inheritance or a big bonus) above the usual £60,000 annual cap

If you had a private or workplace pension open, yet hadn’t used your maximum allowance in any of the three previous tax years, you can bring it forward and use it this year – putting in a maximum of this year's earnings. 

Can anyone clarify if I can used the last 3 years to add to my SIPP, please?

Your tax-relievable personal contributions are limited by your earnings, and you need to use the current year's allowance of £60K (gross value of personal contributions + employer contributions) before you can look at using 'carry forward'.

ajbennett said:

So my understanding is that this is possible, but I am not sure if I can do it though my SIPP or whether I somehow have to persuade my employer/ company to do this.

Employer contributions aren't linked to earnings in the same way, but quite how you are going to persuade them to stick a hefty lump into a pension scheme on your behalf when your salary is £20K might be a bit of a challenge...

dunstonh

I earn £20K/a 
<snip>

Can anyone clarify if I can used the last 3 years to add to my SIPP, please?

Unless you have access to employer/company contributions, you will not be allowed to use carry-forward.

You have to use up 100% of the annual pension allowance for this year before you can use carry-forward.  That means making a £60k contribution.   However, as you earn £20k, you cannot exceed £20k on individual contributions.    

DRS1

We have no idea how small your inheritance is but assuming your personal pension contributions don't already eat up 100% of your taxable earnings you can still contribute a gross amount to your SIPP which uses up what is left of your taxable earnings - and then repeat that next tax year.  You may not get the inheritance into the SIPP all in one go but that doesn't mean you should drop the whole idea.

Albermarle

DRS1 said:

We have no idea how small your inheritance is but assuming your personal pension contributions don't already eat up 100% of your taxable earnings you can still contribute a gross amount to your SIPP which uses up what is left of your taxable earnings - and then repeat that next tax year.  You may not get the inheritance into the SIPP all in one go but that doesn't mean you should drop the whole idea.

As above.
In effect live off your inheritance for the next X number of years, and put your wages in your pension each year.
You can keep the inheritance in a savings account as it used up, and earn some interest on it.
You could also spend some of it !

LHW99

Or put a chunk in premium bonds and keep your fingers crossed?

Don't forget the £20k will include any autoenrollment etc contributions you've already made.

QrizB

andys15 said:

He isn’t aware of the tax element.  He is suggesting doing it over 2 financial years but surely doing it over 1 makes sense for the 60% tax.  

He's got a point.

Making a pension contribution large enough to get you out of the 45% band for two years in a row (his suggestion) is a better outcome than getting out of the 45%, 40% and 20% bands for a single year (your suggestion).

dunstonh

Thanks Ali.  I have a financial advisor.  He comes as part of the SIPP.  

So, a sales rep then?

He isn’t aware of the tax element.  He is suggesting doing it over 2 financial years but surely doing it over 1 makes sense for the 60% tax.  

Are you sure he is an adviser and not a clerk?    Not being aware of the tax handling would be bizarre from an adviser (even tied sales reps).

andys15

QrizB said:

andys15 said:

He isn’t aware of the tax element.  He is suggesting doing it over 2 financial years but surely doing it over 1 makes sense for the 60% tax.  

He's got a point.

Making a pension contribution large enough to get you out of the 45% band for two years in a row (his suggestion) is a better outcome than getting out of the 45%, 40% and 20% bands for a single year (your suggestion).

Thanks.  But because I don’t get any personal allowance does that not effectively mean I am paying 60% tax. If I split it over two years then I don’t get below the £125k.  I am not great at this though. 

andys15

dunstonh said:

Thanks Ali.  I have a financial advisor.  He comes as part of the SIPP.  

So, a sales rep then?

He isn’t aware of the tax element.  He is suggesting doing it over 2 financial years but surely doing it over 1 makes sense for the 60% tax.  

Are you sure he is an adviser and not a clerk?    Not being aware of the tax handling would be bizarre from an adviser (even tied sales reps).

No not a sales rep.  A different company to my sipp provider but I get a discount if I use the financial advice company.  The fees are more if I don’t use a financial company. 

I am doing him a disservice.  It is my lack of understanding about the tax element.  Although he isn’t a tax man.