Carry Forward & Employer Contributions
HR246
Member
Hi everyone,
Just want to check that my understanding of something carry forward related is correct.
If someone has an annual allowance (including some carry forward) of £70k for this year, with a salary of £40k, and their employer has contributed £30k to their pension, can the individual contribute £40k?
My thinking is that they can receive total pension contributions from all sources of £70k gross this tax year and still receive tax relief. Personal contributions are capped by relevant UK earnings in this tax year (£40k in this instance) even with carry forward, so the individual can make a £40k contribution but no more. The £30k employer contribution then goes on top to use up the full £70k allowance. Is this right?
As a follow up to this - if the person's total taxable income is £90k, but only £40k of it counts as relevant UK earnings, if they make a £40k pension contribution, am I right in thinking that they would be able to claim higher rate tax relief on the circa £40k that they pay higher rate tax on, even if it's not counted as relevant UK earnings?
Comments
Your AA / tax relief thoughts are correct.
If I was picky (and excluding DB accrual/conts) I'd say they could get pension contributions from all sources of up to £70,000 without triggering an annual allowance charge.
The tax relief position will be dictated by the type of contributions made. get pension People often confuse tax relief and annual allowance when they are two separate (but interrelated issues).
Re the tax relief you get it basically depends on what income moves between the tax bands.
The 40k gross personal contribution increases the basic rate and higher rate bands for the individual if it is RAS and effectively extends the personal allowance if it is Net Pay.
If you bung the details in our tax relief modeller you'll see the tax sums https://www.mandg.com/pru/adviser/en-gb/tools-calculators/tax-relief-modeller