Tax Free Annual Allowance for Pension Contributions

[jeremyc]

My employer makes contributions to my pension which are tax-free provided they are under the annual allowance as defined by HMRC (currently £60,000).

HMRC also allow unused tax-free annual allowance to be carried over from the previous three years.

If my employer makes a contribution to my pension this tax year that is in excess of the £60,000 annual allowance, but less than this year's allowance plus the carried-over allowances, does the pension provider automatically deduct tax or do they leave it to HMRC/me to work it out via self-assessment?

As an example:
- Carry over tax-free allowance for pension contributions from previous three tax years: £95,000
- Tax free annual allowance for pension contributions from this tax year: £60,000
- Employer contribution this tax year: £90,000
- Does the pension provider deduct tax on anything over £60,000?

Anyone have any experience of what actually happens in this scenario? My pension provider have been unable to tell me.

To my thinking the pension provider has no way of knowing what carry over allowance I have so it's just a question of whether they automatically deduct tax on anything over the allowance.

[leef44]

Yes, in your scenario, presumably you are on PAYE code then tax relief is given at source. It may take a couple of months for the tax rebate to come through your pay. PAYE works on a year to date basis calculation.

ETA: HMRC will do their own research regards ensuring that you have sufficient carry forward allowance.

[jeremyc]

leef44 said:

Yes, in your scenario, presumably you are on PAYE code then tax relief is given at source. It may take a couple of months for the tax rebate to come through your pay. PAYE works on a year to date basis calculation.

ETA: HMRC will do their own research regards ensuring that you have sufficient carry forward allowance.

Thanks.

And if I don't pay any income tax?

[leef44]

jeremyc said:

hanks.

And if I don't pay any income tax?

You would have to check with your employer. Normally they wouldn't allow pension contributions which are bigger than your pay for that month.

[Rufus Stone]

jeremyc said:

My employer makes contributions to my pension which are tax-free provided they are under the annual allowance as defined by HMRC (currently £60,000).

HMRC also allow unused tax-free annual allowance to be carried over from the previous three years.

If my employer makes a contribution to my pension this tax year that is in excess of the £60,000 annual allowance, but less than this year's allowance plus the carried-over allowances, does the pension provider automatically deduct tax or do they leave it to HMRC/me to work it out via self-assessment?

As an example:
- Carry over tax-free allowance for pension contributions from previous three tax years: £95,000
- Tax free annual allowance for pension contributions from this tax year: £60,000
- Employer contribution this tax year: £90,000
- Does the pension provider deduct tax on anything over £60,000?

Anyone have any experience of what actually happens in this scenario? My pension provider have been unable to tell me.

To my thinking the pension provider has no way of knowing what carry over allowance I have so it's just a question of whether they automatically deduct tax on anything over the allowance.

No, the pension provider will not deduct any tax from the employer contribution. They should satisfy themselves that you have the necessary allowance for it though.

[jeremyc]

leef44 said:

jeremyc said:

hanks.

And if I don't pay any income tax?

You would have to check with your employer. Normally they wouldn't allow pension contributions which are bigger than your pay for that month.

Again, thanks for responding.

The pension contributions are made in a lump sum (variable, and generally once or twice a year) that the comparison my monthly salary is more difficult.

[jeremyc]

Rufus Stone said:

No, the pension provider will not deduct any tax from the employer contribution. They should satisfy themselves that you have the necessary allowance for it though.

Do you have direct experience of this?

I don't really want to find out the hard way that they decide to make a deduction.

[mikef]

If you are going to make use of brought-forward allowances, make sure you keep a complete paper trail including earnings and annual pension statements going back at least three years earlier than the first payment that is above annual allowance

I am currently scrabbling around to respond to a demand for information from “HMRC Wealthy/Mid-Sized Business Compliance” unit with hefty fines for not providing all the required information within four weeks

[jeremyc]

mikef said:

If you are going to make use of brought-forward allowances, make sure you keep a complete paper trail including earnings and annual pension statements going back at least three years earlier than the first payment that is above annual allowance

I am currently scrabbling around to respond to a demand for information from “HMRC Wealthy/Mid-Sized Business Compliance” unit with hefty fines for not providing all the required information within four weeks

Good advice.

When your employer made contributions above annual allowance did the pension provider make any deductions?

If it happens, this will be the first time I've experienced an above allowance contribution, hence my questions.

Good luck with the information provision.

[mikef]

jeremyc said:

When your employer made contributions above annual allowance did the pension provider make any deductions?

Not that I recall, although they did note that the contribution was above the annual allowance

One year, there were two employers and two pension schemes; neither would have known that the total was over the annual limit

[Rufus Stone]

jeremyc said:

o you have direct experience of this?

I don't really want to find out the hard way that they decide to make a deduction.

Yes, many times.

Ignore leef44.