Using previous years pension contributions
Discussion
I have seen that you can use previous years pension contributions if they fell below the limit (unused allowance), up to 3 previous years. Would this reduce my taxable income/increase personal allowance for this year 21/22 ? Eg If the 3 years previous I had only put in £20k each year, could I use up 2 years £40k and add that to the £40k I put in this year to effectively reduce taxable income/raise personal allowance ?
Possibly.
If you have earnings of £80k this tax year you could put £80k into your pension this year (£40k this years allowance, plus the 2x £20k that was carried forward as not used in previous years).
Remember that the £80k includes whatever your employer puts in on your behalf and the tax relief that your SIPP provider gives you so you can’t just put the full £80k of your own money in if your employer has or is putting in something and you are likely to receive the 25% tax ‘relief at source’ on your contributions..
If you have earnings of £80k this tax year you could put £80k into your pension this year (£40k this years allowance, plus the 2x £20k that was carried forward as not used in previous years).
Remember that the £80k includes whatever your employer puts in on your behalf and the tax relief that your SIPP provider gives you so you can’t just put the full £80k of your own money in if your employer has or is putting in something and you are likely to receive the 25% tax ‘relief at source’ on your contributions..
Mogul said:
Possibly.
If you have earnings of £80k this tax year you could put £80k into your pension this year (£40k this years allowance, plus the 2x £20k that was carried forward as not used in previous years).
Remember that the £80k includes whatever your employer puts in on your behalf and the tax relief that your SIPP provider gives you so you can’t just put the full £80k of your own money in if your employer has or is putting in something and you are likely to receive the 25% tax ‘relief at source’ on your contributions..
Thank you. I had forgotten factor in the 25% tax relief, so will recalculate what I can put in. If you have earnings of £80k this tax year you could put £80k into your pension this year (£40k this years allowance, plus the 2x £20k that was carried forward as not used in previous years).
Remember that the £80k includes whatever your employer puts in on your behalf and the tax relief that your SIPP provider gives you so you can’t just put the full £80k of your own money in if your employer has or is putting in something and you are likely to receive the 25% tax ‘relief at source’ on your contributions..
It raises an interesting question though.
If you are going to end up with more than £40k of pension input within any one individual scheme (within the current tax year) you should anticipate that your scheme provider will issue *you* with a Statement of Pension Savings which may help you deal with your Self-Assessment obligations, but I don’t believe that the provider would automatically send a copy of that statement to HMRC.
The upshot is that if you end up with more pension input (and therefore tax relief) than you were entitled to (with or without carry forward) it does appear to be a purely Self-Assessment issue (with all that that entails in terms of penalties and interest).
I.e. your pension provider cannot help you but neither is it there to do HMRC’s work for it.
It could however, become messy if you were ever required to go through everything, forensically, that you had attempted to do in good faith.
https://www.gov.uk/guidance/pension-administrators...
If you are going to end up with more than £40k of pension input within any one individual scheme (within the current tax year) you should anticipate that your scheme provider will issue *you* with a Statement of Pension Savings which may help you deal with your Self-Assessment obligations, but I don’t believe that the provider would automatically send a copy of that statement to HMRC.
The upshot is that if you end up with more pension input (and therefore tax relief) than you were entitled to (with or without carry forward) it does appear to be a purely Self-Assessment issue (with all that that entails in terms of penalties and interest).
I.e. your pension provider cannot help you but neither is it there to do HMRC’s work for it.
It could however, become messy if you were ever required to go through everything, forensically, that you had attempted to do in good faith.
https://www.gov.uk/guidance/pension-administrators...
Agreed, I had looked on HMRC and they do not require being informed of using previous years allowance. Seems it is all dealt with through SA. I'm not sure if someone somewhere does check this.
I've decided to keep it at £40k as it could end up being more hassle than it's worth. As you point out.
I've decided to keep it at £40k as it could end up being more hassle than it's worth. As you point out.
Is really that much hassle to do a SA?
If your post pension earnings are in the retarded 100-125k (IIRC) 60% marginal rate of tax, makes even more sense to use that allowance.
I'll probably be using up some previous years pension allowances as I'm now 40 and feeling mortal and have no where near enough of a pension so am paying catch up as I decided sports cars were a better use of money when young. It's a good relief, definitely worth your looking into it IMO. Once it's gone, you can't go back, use it or lose it!
S
If your post pension earnings are in the retarded 100-125k (IIRC) 60% marginal rate of tax, makes even more sense to use that allowance.
I'll probably be using up some previous years pension allowances as I'm now 40 and feeling mortal and have no where near enough of a pension so am paying catch up as I decided sports cars were a better use of money when young. It's a good relief, definitely worth your looking into it IMO. Once it's gone, you can't go back, use it or lose it!
S
Spidersleg said:
Agreed, I had looked on HMRC and they do not require being informed of using previous years allowance. Seems it is all dealt with through SA. I'm not sure if someone somewhere does check this.
I've decided to keep it at £40k as it could end up being more hassle than it's worth. As you point out.
It's worth up to almost an extra £16k of tax saving! Give an accountant £250 to do your SA, still well worth it as you can never save that money again. I remember doing exactly that and my accountant didn't even charge me extra for the additional work. I've decided to keep it at £40k as it could end up being more hassle than it's worth. As you point out.
Edited by nickfrog on Monday 21st February 08:33
To secure the ‘40%’ relief, you either need to get your employer to make the contribution on your behalf (via sacrifice or exchange) or interact with HMRC (over the phone or via SA) and of course, you won’t get the full 40% relief if the upshot is that your residual taxable income is now within the Basic Rate band.
Interestingly, it would appear that you can effectively get full ‘20%’ pension tax relief on Input up to the full Basic Rate band (normally £50,270) and someone with earnings equal to the £12,570 Personal Allowance could put £10,056 (net) into their pension and get £2,514 (25% of the net amount) of ‘tax relief’ added even though they have not suffered any tax….
This is a net gain or ‘free money’ :-)
Interestingly, it would appear that you can effectively get full ‘20%’ pension tax relief on Input up to the full Basic Rate band (normally £50,270) and someone with earnings equal to the £12,570 Personal Allowance could put £10,056 (net) into their pension and get £2,514 (25% of the net amount) of ‘tax relief’ added even though they have not suffered any tax….
This is a net gain or ‘free money’ :-)
Edited by Mogul on Monday 21st February 09:43
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