Annual Pension Contribution Allowance

Cheshiregrin wrote: »

Ok, I've had time to digest this information and now it makes sense. I have never paid into anything other than the TP so have not used up any previous years AA.

Using actual figures from last years P60 and my current payslips, (I will get a 2% salary increase soon but I think these figures will still work), I plan to put the maximum amount into my AVC (for the next 3 years) straight from my salary (and live off savings) as follows:
Monthly:
3209 Gross pay
2,318 to AVC
308 to TP
146 to student loan
298 to NI
0 to tax per month from my payslip (see calculation below)
3070 Total deductions per month from my payslip

3209 Gross pay
3070 Total deductions per month from my payslip
139 on payslip to go in my bank

Is this an actual payslip or what you think it should look like? It looks right with the AVC being deducted before tax.
Your previous post confused AVC & SIPPs. They work differently. With a SIPP you make a net contribution, and the provider claims basic rate tax relief.

With an AVC deducted from your pay (using what HMRC confusingly call "net pay"), your AVC is deducted before tax, and the scheme does not claim any tax relief. You get tax relief in your payslip (BUT see below).
So I presume you're just using AVCs, not a SIPP as well?

Calculation for tax for the year
38,500 gross pay
12,500 free pay
26,000 taxable pay for the year
3,697 less pension contributions
27,817 less AVC contributions
26,000 – (27,817 + 3,697) = -5,514

Therefore no tax will be paid for the 12 month period.

Yes. Doing what you're doing/proposing above means it's almost impossible to exceed the "earned income tax relief" limit, 100% of earnings, as it's hard to pay in over 100% of earnings from your pay! (it is possible in obscure situations)
But you still need to keep an eye on the annual allowance if you do this long term. I presume the AVC is a money purchase scheme rather that buying additional DB years etc? If so your PIA is the PIA to the teacher's DB scheme plus the AVC conts, which is getting close to £40k.

But if this is the first year you're doing this, you'll have plenty of carry fowards, assuming you've been in a pension scheme the last 3 years (you can only use carry forwards if you've been in some sort of pension scheme in the previous years). You just need to keep an eye on carry forwards available if you do it for more than 2 or 3 years, as the PIA to a DB scheme, particulary if there's a final salary element, can vary quite a lot depending on inflation and payrises etc.

Have I got the tax relief correct?
Any other comments please?
Thanks in advance.

With a "net pay" scheme scheme you only get tax relief to the extent you pay tax, ie tax can't go negative, it can only go to 0. So you will get no tax relief on the £5514 below the personal allowance. The only way you can get tax relief below the personal allowance is with a RAS scheme like a SIPP.
So without good other reasons, it's not usually sensible to pay into a pension without getting tax relief. Or do you have other income?

If you really wanted to, you could use AVCs to take your taxable income down to £12500, then use a SIPP/personal pension to contribute £12500 gross (£10000 net - you pay in £10k and it's grossed up to £12500). You can get tax relief within the personal allowance using a RAS scheme even if you don't pay tax!

You'd exceed this year's annual allowance but you seem to have enough carry forwards from the last 3 years. You'd need to keep a close eye on carry forwards available if you do it in future years.

But don't do this unless you're confident you understand the rules!