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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Personal taxation regarding pension contributions Assistant:

Customer Question

Hi - personal taxation regarding pension contributions
Assistant: Thank you. Can you provide any more details to help us find you the right Expert?
Customer: Sure - the personal allowance reduces based on total earnings for the year If I place a large sum to make up previous years pension allowanace does this reduce the threshohold for the current year ?
Submitted: 7 months ago.
Category: Tax
Expert:  TonyTax replied 7 months ago.

Hi. My name is*****'m looking at your question now and will post my answer or ask for more information here in a short while.

Expert:  TonyTax replied 7 months ago.

I'm not sure what you mean by "does this reduce the threshold for the current year ?".

If your income, not just earnings, for a tax year is over £100,000, you lose £1 of the personal allowance for every £2 of income over £100,000. If, however, you pay a pension contribution the gross contribution reduces your "adjusted net income" for the purpose of determining your entitlement to any, all or none of the personal allowance. So, for example, if your income is £110,000 and you pay a net pension contribution of £8,000 (£10,000 gross), then your adjusted net income income will be £100,000 and you will keep all your personal allowance. It makes no difference whether the pension payment you make includes an element to cover unused relief from an earlier tax year. Look here for information on adjusted net income.

I hope this helps but let me know if you have any further questions.

Customer: replied 7 months ago.
Thank you Tony- the question was not well articulated. To provide more detail. I am being made redundant. My compensation for the year will be >£210K including redundancy pay. My understanding is the tax free pension contribution tapers down to £10K also. Can this be recovered also back to £40K by making pension contributions to previous yearsThanks Ian
Expert:  TonyTax replied 7 months ago.

There is information on the annual allowance here.

You cannot backdate a pension contribution. You can make a pension contribution in the current tax year which includes unused annual pension allowance from the three previous tax years. Tax relief will be given in the current tax year.

Customer: replied 7 months ago.
Thanks Tony. So my current year pension allowance can't exceed £10K when my current years earning exceed £210K regardless of how much pension contribution I make either this year or for previous years. Correct?
Expert:  TonyTax replied 7 months ago.

You ought to check with your pension provider exactly what you can do.

As your income for 2016/17 will be high, the annual allowance for that year will be £10,000 according to the information in the link I gave you. You still have unused annual pension allowance for earlier tax years but you should check with your pension plan provider to find out what that is as that will be the figure you can add to the 2016/17 annual allowance of £10,000 and determine what the highest payment you can get tax relief on is for 2016/17.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15883
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
TonyTax and 2 other Tax Specialists are ready to help you
Customer: replied 7 months ago.
Thanks Tony. I had around 60K allowance left from previous years. So that maximum I could make appears to be £70K. That was what I was trying to determine. i.e. will I lose my personal allowance (answer is yes) will I lose my £40K pension contribution allowance (answer is yes) So thank you very much. You have confirmed my thoughts. Regards Ian
Expert:  TonyTax replied 7 months ago.

Thanks.

I've seen many cases where individuals have paid too much in pension contributions and had to pay an annual allowance charge to HMRC. All that has to be done is for the individual to ask their pension plan provider for a breakdown of unused relief for earlier years and to add that to the current year's allowance which in your case is £10,000. You say you have £60K from earlier years so just to be sure, check that with your plan provider.

Customer: replied 7 months ago.
Thanks Tony - you've been very helpful
Expert:  TonyTax replied 7 months ago.

Thanks.

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