Reply to: £160k pension contribution including previous three years: is this a problem?

[mogga71]

You can contribute £40K + any unused allowance from the previous three years as long as you are a member of a pension scheme. Doesn't matter if it's a new SIPP. I opened a SIPP three years ago and contributed £80K in the first year.

Cheers ... I didn't realise that.

[adubya]

Thanks, yes that's what I meant. If I had a pension scheme which I paid into say 20 years ago but not since and the pension account were still active, then that would tick the box.

[Amanensia]

You can contribute £40K + any unused allowance from the previous three years as long as you are a member of a pension scheme. Doesn't matter if it's a new SIPP. I opened a SIPP three years ago and contributed £80K in the first year.

And were a member of a pension scheme (any pension scheme) in each prior year for which you are using your historic allowance.

(I appreciate that's probably what you meant, just wanted to be crystal clear for other readers as it seems remarkably common for people to fail to follow the precise logic.)

[adubya]

I don't think he can put £160k in as he will have only just opened up the SIPP. The most you could put in is £40k. The SIPP provider may well have measures in place to prevent the overspend. This seems to have mentioned on the opening page of the thread but seems to have been forgotten about in all the talk about tapering. I will ask my SIPP provider and let you know.

You can contribute £40K + any unused allowance from the previous three years as long as you are a member of a pension scheme. Doesn't matter if it's a new SIPP. I opened a SIPP three years ago and contributed £80K in the first year.

[mogga71]

No, CT is 19% of operating profit, company pension contributions will reduce that profit by £20K but there will still be CT due on the lower profit figure.

If you want zero CT then you need to end up with zero operating profit.

You could make a company contribution of £40K, which is the annual allowance. If you're a member of an existing pension scheme and haven't used the £40K allowance in the last three years then you can use those allowances in this year also. So potentially you could put £160K in this year.

I don't think he can put £160k in as he will have only just opened up the SIPP. The most you could put in is £40k. The SIPP provider may well have measures in place to prevent the overspend. This seems to have mentioned on the opening page of the thread but seems to have been forgotten about in all the talk about tapering. I will ask my SIPP provider and let you know.

[Amanensia]

At least on my findings there’s no tax relief if you try to pay more pension than your earnings on that year.

That's not correct for employer contributions.

[meyerbro]

This isn't right and why have you registered only to necro a thread from 2 years ago?

Why you think I did just because of that?

I found the forum and decided to do my first comment.

At least on my findings there’s no tax relief if you try to pay more pension than your earnings on that year.

Relax, I was just trying to join the conversation and forgot to check the date.

But this subject is going to be a very important one soon with people migrating to perm/umbrella now.

[TheCyclingProgrammer]

I don't think you can as HMRC only allows you to pay in pension the amount of turnover/salary you make on that year. To pay £160k you need to have an income of £160k at least on that year.

This isn't right and why have you registered only to necro a thread from 2 years ago?

[meyerbro]

I don't think you can as HMRC only allows you to pay in pension the amount of turnover/salary you make on that year. To pay £160k you need to have an income of £160k at least on that year.

[WordIsBond]

Right. A contribution of £20K would reduce your CT by £3.8K.

[adubya]

So if I open a SIPP today, & I've estimated my CT to be £20k, can I pay that into the SIPP & not pay CT?

No, CT is 19% of operating profit, company pension contributions will reduce that profit by £20K but there will still be CT due on the lower profit figure.

If you want zero CT then you need to end up with zero operating profit.

You could make a company contribution of £40K, which is the annual allowance. If you're a member of an existing pension scheme and haven't used the £40K allowance in the last three years then you can use those allowances in this year also. So potentially you could put £160K in this year.

[SteelyDan]

Correct. Retained profits from prior years have already had CT paid. But if the contribution puts OP's company into a loss this year (which it appears it would), he can carry it back for one year to apply to last year's profits and reclaim CT paid last year. And if he still has excess loss after wiping out last year's profits, he can carry the remainder forward to next year and apply it against next year's profits, reducing his CT liability.

So if I open a SIPP today, & I've estimated my CT to be £20k, can I pay that into the SIPP & not pay CT?

[WordIsBond]

That's true, I wouldn't exceed the threshold income.

If I'm reading the article at that link right, it wouldn't be an issue anyway, because it implies that only £40K, the current year's allowance, would be used in the calculation, and that the contributions that use up the carryforward allowance would simply be set off against those years.

So you appear to be doubly in the clear on that point, it probably isn't an issue for your adjusted income threshold, either. The only issue, then, is your accountant's unease with it and the fact that it would create a loss.

If you don't do it all in this year, the carryforward is applied to the earliest year possible, after using the current year's allowance. So if you do £80K this tax year, the first £40K goes to this year, the other £40K goes to the 2014-2015 tax year, 15-16 and 16-17 are untouched. If you do £80K next year, it would cover 18-19 and 15-16, but if you don't use the allowance for 15-16 next year, it will be lost. The allowance for 16-17 has to be used by 19-20.

One small thing that might argue for doing it now. If you take a loss this year and carry it back to offset last year's profit, you'll have Corporation Tax for last year refunded at 20%. This year's CT rate is 19%, and it is supposed to be going to 18% in 2020. So by doing it now you get tax relief at a slightly higher rate than you would get it later. Whether that is worth the hassle of having to carry back the loss and claim the refund is up to you and your accountant.

[OneManBand]

Are you sure ? There are two thresholds you need to exceed, the "adjusted income" and the "threshold income".

"adjusted income" threshold (150K) includes company pension contributions so you'd exceed that.

But the "threshold income" (110K) is your income excluding the company pension contributions. You'd exceed that if your income is > £110K.

That's a lot of salary and dividends for a contractor.


Read example 3 of this -> https://www.youinvest.co.uk/sites/de...e_tapering.pdf

That's true, I wouldn't exceed the threshold income.

[adubya]

Top thread, been planning to do something similar, confirms my understanding.

Out of interest (and since there's been a few other threads about various SIPPs recently) which SIPP did you go for?

iWeb for me.