Pension Contribution Tax Relief on Carry Forward Amount

[jakinvegas]

Hello,

I'm trying to use pension contributions to benefit from tax relief. This tax year 21/22 my plan is to use up the 18/19 carry forward allowance and to increase my pension amount by 80k. My scenario looks like this:

Year: 2021/2022 Annual Allowance: 40000 Total Contributions: 80000k
(50k from salary sacrifice, 24k from savings, and 6k from relief at source via the SIPP)

Year: 2020/2021 Annual Allowance: 40000 Total Contributions: 3000
Year: 2019/2020 Annual Allowance: 40000 Total Contributions: 0
Year: 2018/2019 Annual Allowance: 40000 Total Contributions: 0

I understand there's four rules that apply when using your carry forward annual allowance.

1. Must be a member of a registered pension scheme.
2. Earnings and Contributing into pension this current tax year must be 40k.
3. Must be sufficient unused annual allowance from previous allowance years
4. You must earn at least the amount you wish to contribute in the tax year you are making the contribution for.

One area where I'm stuck is understanding rule 4. Reading the guide on moneyhelper is says the rule "doesn’t apply if your employer is making the contribution on your behalf".

"In addition, to receive tax relief on your contributions, you must earn at least the amount you wish to contribute in the tax year you are making the contribution for. So if you, for example, want to make total contributions of £100,000 you must earn at least £100,000 in that tax year. This doesn’t apply if your employer is making the contribution on your behalf. "
source: moneyhelper.org.uk tax-and-pensions carry-forward guide.

Any ideas what that would mean for my example?

Current plan is that I'm salary sacrificing the 50k contributions via my employer. Since after salary sacrifice, my gross salary is equivalent to 75k, does this mean that I can't max out using the carry forward allowance to 80k, or does the commentary above mean its ok to do so.

[bluedonkey]

The employer contribution isn't taken into account when matching PP contribution against earnings as the e'er contribution is, in effect, extra earnings itself.

It IS taken into account, as you have done, when checking whether you are within the annual allowance (as boosted by the b/fwd from earlier years).

Based on the information you have given, I think you are able to make the contributions stated.

[jakinvegas]

I think that's correct.

My key insight after talking to MoneyHelper is that all contributions via Salary Sacrifice count as employer contributions.
The annual allowance limit applies to pension inputs from all sources.

The tax relief limit for the carry forward allowance applies to your tax year earnings, but not to anything contributed via SS.
It is only the employee contributions that you make outside of salary sacrifice that count towards the tax relief limit.

Your personal contribution in a tax year cannot be more than your gross earnings, but the total amount including SS employer contributions can go beyond your gross earnings amount.