Carry Forward + Salary Sacrifice + Tapered Annual Allowance

Wildparaplanner

Hi all,

We have a client who is looking to funnel a large bonus via salary sacrifice into their pension.

Before this bonus is even paid, on paper, they have carry forward to utilise and are not tapered or were tapered in previous years.

We want to do a personal contribution on top of the salary sacrificed bonus to fully utilise the carry forward.

However, is this going to cause a problem as the bonus will in effect taper his current annual allowance as it will take his threshold income above the cap. If so, how do you get around this?

Thanks

les_cameron

You need to add any salary/bonus sacrificed back into threshold income. The sacrificed salary is not included in adjusted income but the resultant employer contribution is.

The only way to get around the taper is to get one of your incomes below the limit. Easiest (or only way at this tine of the tax year) way is a personal contribution to get threshold below the limit.

Wildparaplanner

Thanks les, would a large personal contributions of say £120,000 to utilise carry forward count to reduce this issue or would only the relevant part that uses this years annual allowance count?

les_cameron

The total gross amount of a personal contribution (not salary sacrifice) would reduce the threshold income - so might make the taper go away. If you don't get the threshold income below the limit you will still get the pre contribution taper as personal contributions dont reduce your adjusted income, which is the income the tapering run off.

Wildparaplanner

perfect, thanks Les as always