Workplace pension contribution tax relief, limits and carry forward

Hello, I'd like to ask a few questions about rules surrounding the workplace pension contribution tax relief, limits and carry forward. 1. The following article: https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief says: > You can get tax relief on private pension contributions worth up to 100% of your annual earnings. Could you confirm that it's "100% of one's gross annual earnings", please? E.g. if my gross earnings in a tax year amount to £30,000, then I should able to get a tax relief on pension contributions up to £30,000 gross (£24,000 net), yes? I'm asking because assuming there is an annual income personal allowance of £12,570, then in that financial year I would pay tax of £3,486 (i.e. 20% of £30,000 - £12,570). So if I contribute (via my monthly contribution from my employment and via any private lump sum contributions) £24,000 net in that year, then I would get £6,000 in tax relief, however that's more than the amount of income tax that I would have paid in that year (£3,486). So, could you confirm that despite this difference between tax paid and tax relief received, I am able to get a tax relief on the total of £30,000 gross in the example above, please? 2. The following article: https://www.gov.uk/guidance/check-if-you-have-unused-annual-allowances-on-your-pension-savings says: > You can carry forward unused annual allowances from the 3 previous tax years. Assuming the following: - I would earn £30,000 in the current financial year - The workplace pension contribution limit in the current financial year is £60,000 - I have unused annual allowance from previous 3 years that amount to £70,000. Would I be able to get a tax relief on a lump sum contribution of e.g. £75,000 (£93,750 gross) in current financial year by the means of the unused annual allowance carry forward (£60,000 from current year, and £33,750 from previous 3 years, starting from the earliest)? I'm asking because I've been told in person, and there also seems to be an opinion on the Internet that pension contribution carry forward may be used only if one's *annual earnings* exceed the annual pension contribution limit. In the example above, the annual earnings (£30,000) do not exceed the pension contribution limit (£60,000). So, again: may the carry forward rule be used merely due to the amount of contribution's exceeding the annual contribution limit, or must one's annual gross earnings exceed the annual contribution limit in order for one to be able to use pension contribution carry forward rule? 3. If I use up my annual pension contribution limit via a lump sum contribution in the middle of a financial year, would the usual monthly pension contributions from my employment continue to receive tax relief without problems, assuming I still have unused annual allowance from the previous 3 years to carry forward? Would I need keep informing the HMRC every month (or perhaps once, at the end of the current financial year) of how much unused annual pension allowance I carried forward (and from which years)? 4. Assuming that the pension carry forward rule may be used in all of the examples above, are you able to tell me why the following workplace pension says the following: https://thepeoplespension.co.uk/pension-tax/ > You’ll need to meet 3 conditions to use carry forward: 1. You must earn at least the amount you wish to contribute in total in the current tax year (...). For example, if your earnings are £70,000 – you can only contribute up to £70,000 and get tax relief on this. And why they require that anyone making a lump sum contribution should sign the following declaration: https://thepeoplespension.co.uk/wp-content/uploads/TPP-FO-0023.0522-Personal-payments-form_v5.pdf > The total of all contributions paid into any registered pension schemes on which I am entitled to tax relief will not exceed the higher of £2,880 net (£3,600 gross) or my relevant UK earnings. (...) I’m aware that the amount I can pay into my pension in a tax year and receive tax relief on is £60,000, providing I have the relevant UK earnings to support this. Both statements indicate that one cannot make a lump sum contribution larger than one's annual earnings, and that carry forward cannot be used without this condition being met. Is this in fact the case? I.e. that in order to use carry forward, one has to support the entire tax relief by earning *in the current tax year* at least the amount of money they wish to contribute to their pension scheme, and that this is in fact where the tax relief comes from (i.e. from the income tax paid in the current year)? --- Apologies for the length of these questions. Thank you and looking forward to your answer.

Hi dom.1000,

You get tax relief on your gross earnings and the 100% applies on this.
This is applied by the pension company and as such is not relevant to the tax paid in the year.
The unused relief relates to pension savings tax charges so that if you make a payment over the annual allowance, any unused relief would go against this to reduce/cancel any charge.
If you do not have enough income to then use the relief on a pension contribution then nothing further would be due.
If the lump sum was paid without the deduction of tax, then yes you would still be entitled to tax relief on that - this would be restricted to the amount of tax paid in the year.
For the annual allowance, if you use this, it cannot be carried forward. any unused relief is lost after 3 years.
Further guidance is at Pension savings — tax charges (Self Assessment helpsheet HS345)

Thank you.

Hi HMRC Admin, Thank you for your response and the url to a helpsheet. Please let me ask some follow up questions to make sure I understood everything correctly. You said: "If you do not have enough income to use the relief on a pension contribution then nothing further would be due." Does it mean that pension contribution tax relief is applicable only up to my annual income? I.e. in the example situation I provided in point 2. in my original post, does it mean that I would be able to get tax relief only up to £30,000 gross (despite having annual allowance + carry forward amount to support a lump sum contribution that exceeds £30,000)? I apologise if this is obvious, but I get multiple opinions from various people. If you answer this particular question, then it would remove any doubt in this regard. You also said: "If the lump sum was paid without the deduction of tax, then yes you would still be entitled to tax relief on that - this would be restricted to the amount of tax paid in the year." I have trouble understanding the "If the lump sum was paid without the deduction of tax" part. Would you be able to explain it a bit further please? Let's assume that a lump sum that I intend to contribute is net (i.e. it's after income tax having been paid on it), so I assume that the pension company would be able to request a tax relief on it on my behalf from the HMRC. What is the limit of the lump sum contribution that the pension company would be able to collect tax relief on? Let's use the example from point 1. in my original post. Given annual gross income of £30,000, and annual personal income allowance of £12,570, what is the limit net amount pension contribution that I can make in that financial year, in order for the pension company to be able to retrieve tax relief on it without problems? Income tax paid in this situation is £3,486. Would you say that the pension company cannot claim more than £3,486 in tax relief, which would mean that the limit net lump sum contribution is £13,944? Thank you.

Hello, Would it be possible to answer the above, please? Please let me know in case these kinds of questions aren't really suited to be posted on this forum, which I would be okay with. Thank you.

Hi dom.1000,

The maximum tax free annual allowance for pension payments is £60000 in the current tax year, or the maximum of your employment income if your employment income is below £60000. For example, in 2023 to 2024, your employment income is £45000, then that is your maximum pension conrtibution to receive tax relief.  Any amount above that would be subject to income tax.  
In another example, if your employment income is £25000, then that is your maximum pension conrtibution to receive tax relief.  
Any amount above that would be subject to income tax.  
You can carry forward unused allowances up to the maximum of your employment income.

In the previous tax years, the threshold was £40000, if your employment income was £40000 or above and you paid less than £40000 into your pension scheme, then the unused relief of the three previous years, can be carried forward to the tax year that you pay in excess of the threshold.  
For example.  Your employment income was £45000 in each of the years 20/21 to 23/24 and you paid £25000 into your pension each year.
In 23/24 you put £100000 into your pension.  
The three previous tax years are 20/21, 21/22 & 22/23.  In each year you paid £25000 out of a maximum of £40000, that means that you have £15000 + £15000 +£15000 to add to the 23/24 threshold of £45000.  
A total of £900000.  
£10000 would be taxable and declared in a SA tax return, as you will have exceeded the revised threshold.

Thank you.
 

Hi HMRC Admin, That is a very helpful and illustrative answer. I must admit I didn't think of it that way, and it does make greater sense to me after your example. May I ask just 2 more questions for further clarification, please? 1. You said "In the previous tax years, the threshold was £40000, if your employment income was £40000 or above and you paid less than £40000 into your pension scheme, then the unused relief of the three previous years can be carried forward to the tax year that you pay in excess of the threshold." I'm sure you picked the income of £40000 or above to make the maths easier in the example, but could you confirm that my income could also be below £40000 (i.e. the annual threshold) in order for the carry forward to apply as well? For example: Year, annual threshold, my employment income, my contribution, available carry forward 20/21, £40000, £30000, £10000, £20000 21/22, £40000, £30000, £10000, £20000 22/23, £40000, £30000, £10000, £20000 23/24, £60000, £30000 Would you say that in the example above, I have £20000 + £20000 + £20000 + £30000 = £90000 of available tax-free pension contribution in 23/24? 2. You said "In 23/24 you put £100000 into your pension". Could you confirm that this is £100000 gross, please? I.e. if all of that was put from my "after tax savings" (i.e. net amount), then it would mean that if I put £80000 net, then it would amount to £100000 gross for the purposes of this discussion (and the workplace pension scheme would request and obtain £20000 from the HMRC), and considering the £90000 available tax-free pension contribution from the example above, it would mean that I would go £10000 over that threshold, which I would then need to declare in a SA tax return for 23/24? Once again, thank you for your answers so far. This is very helpful.

Hi,
1.Based on the illustrative example you have provided, your understanding of the 'unused relief carried forward from previous years' position is correct.
2. Yes, the figure provided in the example was the 'gross' amount:
 Tax on your private pension contributions
Thank you.

Thank you.