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Where Taxpayers and Advisers Meet

Using previous years pension allowance with only relevant income this year

tlucas
Posts:2
Joined:Thu Jan 06, 2022 2:00 am
Using previous years pension allowance with only relevant income this year

Postby tlucas » Thu Jan 06, 2022 2:05 am

Hello

I've been advised that I can use previous years pension allowance for tax relief on a large pension contribution this year.

This is despite no relevant income in those previous years, only this current tax year.

Is this correct?

Retired except for a 3 month period of self employment in current tax year.
This current year 21/22 relevant income is £70K.
Currently no contributions made to pension for 5 years, though it's been open for 12 years.

Would like to make pension contribution of £70K (or rather I contribute £70K - 20% = £56K which should equal £70K in pension pot). This is the maximum eligible for tax relief in my circumstances?

This is over the £40K allowance eligible for tax relief, so I'd use a previous year's allowance which is unused. That previous year had no relevant income - only bank interest and large capital gains.

It's my understanding bank interest and capital gains are not considered relevant income in relation to pension allowance.

Is the advice I have received correct that this is permitted?

Thanks

robbob
Posts:3207
Joined:Wed Aug 06, 2008 4:01 pm

Re: Using previous years pension allowance with only relevant income this year

Postby robbob » Thu Jan 06, 2022 2:27 pm

You really need an IFA and taxation specialist to give you the full chapter and verse or take specific advice for your exact circustances - rules are fairly complex so you want someone on the hook if advise turns out to be wrong.

Having done the above caveats i am not aware that there are any problems in theory presuming your contributions arent limited for other reasons (have you drawn any peniosns yet?) - i wouldnt want to commit myself to print with my comments though (hmmm too late) -ok presume what i have said could be wrong.

someone
Posts:542
Joined:Mon Feb 13, 2017 10:09 am

Re: Using previous years pension allowance with only relevant income this year

Postby someone » Thu Jan 06, 2022 7:19 pm

what about the personal allowance? is tax relief capped at the tax paid (like gift aid)?

In which case, 70k is too much (or rather you'll be voluntarily giving hmrc a second bite when you start drawing the pension)

And IIUC, if you're already drawing the pension then it's only 4k/year. (I wouldn't bother with anything other than 40% relief personally unless you can almost immediately take the 25% tax free lump sum.)

Also remember that if the pension is claiming 10k in tax relief, then you'll need to pay 10k in tax. It's easy to forget that some of the money goes via hmrc and even though there"s no eventual tax paid, some does go to hmrc initially so it can be reclaimed by the pension company.

This latter point can be a problem if you're higher rate PAYE as you may need to make a payment using money that you will subsequently reclaim from hmrc so you need to dip into savings temporarily.

tlucas
Posts:2
Joined:Thu Jan 06, 2022 2:00 am

Re: Using previous years pension allowance with only relevant income this year

Postby tlucas » Fri Jan 07, 2022 2:51 pm

Thanks for the replies.

In the end I was able to get clarification from HMRC that I could use previous years pension allowance (carry forward) this year.

This is despite the previous years having no relevant income.

Sorry if my original post wasn't clear - I'm not currently drawing the pension. It might be I never do and it just goes to my beneficiaries when I die.

robbob
Posts:3207
Joined:Wed Aug 06, 2008 4:01 pm

Re: Using previous years pension allowance with only relevant income this year

Postby robbob » Fri Jan 07, 2022 3:42 pm

what about the personal allowance? is tax relief capped at the tax paid (like gift aid)?


rather bizzarely no ! (to the best of myknowledge)


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