Q&A
Pensions Planning at Tax Year End - Q&A
Last Updated: 20 Feb 25 10 min read
Interaction Matters
Q Can you cover what a client can contribute (pensionable income and AA usage) for clients with a current DB scheme who make contributions via salary sacrifice?
A There is an example in this article it’s the case study for Doug that shows how this operates. But broadly speaking you have to factor in that the salary sacrifice is no longer relevant income, as it has been sacrificed. The clients relevant income is then the post sacrifice level and 100% of that can be paid in under the tax relief rules.
Separately you have to factor in the annual allowance rules, the DB scheme will have a pension input amount based on the accrual of that scheme. This amount will use up AA (you don’t need to factor in what the client sacrificed, it’s just the input.
Add the DB pension input amount to what the client pays in to another pension from their relevant income and you will get the AA usage for that year.
Q If an individual earns less than the standard annual allowance, would they simply not be able to use Carry Forward? I.e. an individual earning £50,000?
A If this was purely a personal or third party contribution carry forward would be off the table as their relevant earnings are £50,000 and therefore they cannot exceed the standard annual allowance. Employer contributions are not linked to their salary, so if their employer matched on a 1:1 basis, then a total of £100,000 would have been paid in and carry forward is on the table.
Q Re Relevant UK Earnings for employees, how does that work with Carry Forward? Can an employee earning only £60k pa actually put in £100k in 1 tax year with CF?
A See the above answer.
Q If you had no relevant UK earnings in a c/f year, presumably you can't use c/f from that year?
A No, the only criteria to use carry forward is exceeding this year annual allowance, and being a member of a pension scheme of the year you are looking to carry forward from. You do not need to have had any relevant earnings, you don’t need to have made contributions to the scheme you were a member off. In fact you do not need to have even been in the country for the years in question.
Relevant Earnings Matters
Q Is income from a VCT classed as relevant UK earnings? I believe they are dividend payments and therefore wouldn't qualify?
A No. They don’t qualify.
Q If a client receives income from an Employee Ownership Trust, is this included within their Threshold Income and/or Adjusted Income?
A Our understanding is that distributions that are not within the annual exemption are employment income so would be included.
Q Making pension contributions for others with no relevant earnings, can you make contributions of up to £2,880 to MULTIPLE recipients?
A You can make them for as many people as you want, but you will have to remember that these will be gifts and if no applicable exemptions apply these will be PETs.
Q If recipient does have relevant earnings, what is the limit that someone else can pay for that person? Is the relief based on the recipient or the donor?
A Between the recipients' contributions and what a third party pays in for them they can pay up to 100% of the relevant earnings of the recipient (as it’s the recipient that gets the tax relief).
Q What happens if you contribute more than your relevant earnings in the tax year?
A The excess tax relief will have to be returned to HMRC. The scheme rules will determine if the member payment can be returned or not. The refund is called a refund of excess contributions lump sum (RECLS).
Q A payment gross into a pension is this an anomaly of the tax system that you cannot get anymore tax relief than has been paid (thinking like old RACS)?
A That’s correct, the pension contribution to a RAC would be a step 2 reduction in the seven steps that you need to follow in this article as contributions over your income cannot create a negative tax bill you will get no more relief.
Annual Allowance Matters
Q For the purpose of the tapered annual allowance, does savings income only count on the balance above the PSA when working threshold/adjusted income?
A No, all income is included. Technically the PSA is a 0% rate of tax and not an allowance. It’s the same with the first £500 of dividends.
Q How does carry forward apply when one of those years includes a tapered allowance?
A You have to factor in what the taper was for that year. Our AA calculator can do these calculations for you.
Q If you have adjusted AA down to £10,000, can you use carry forward to make higher pension contribution via employer contributions through a Ltd company?
A You can use carry forward form previous years to increase a tapered annual allowance but you cannot use carry forward to increase the money purchase annual allowance. Remember, employer contributions still count towards the AA, so this could make any excess greater. Also for those that are not fully tapered, further employer contributions would reduce their AA.
Q Does taking the deferred 5% offshore/onshore bond effect the income calculation. Adjusted income and Threshold income?
A No, this is tax deferred income and therefore not subject to income tax in that year.
Q Can small owner director limited company pay the annual allowance charge ( "scheme pays")?
A It’s only pension scheme that can use scheme pays, either or a voluntary or mandatory basis. The conditions for both are covered here If these are not met or accepted, then the member will have to pay the tax charge.
Q Did you mean a tax charge of £160,000 for that teacher, or a charge on a £160,000 usage?
A It was a £160,000 tax charge. It was a large pay rise in a final salary scheme, part of the reason carry forward was introduced when the AA was reduced for these circumstances (although arguably not that helpful in this case!).
IHT Matters
Q Any idea when the consultation period ends on the budget pension changes proposed?
A It closed on 22 January 2025. We expect a response later on this year.
Q Do we know what the IHT position will be for beneficiary drawdown pensions that have already been inherited, post 2027?
A As it stands in the consultation, these will be in the beneficiaries estate on their death.
Q Client with already massive IHT liability on their estate and £1.6m non-crystallised personal pension, no PCLS left. Children HRT. best option for pension pot??
A There is no one size fits all answer unfortunately. It will involve a lot of number crunching, factoring in growth, tax rates for the current owner of the assets, factoring in any gifts already made etc.
Q You mentioned gift out of expenditure on a million pound tax free pot, taking out over four years? Would this actually qualify as a 'Gift out of expenditure'?
A HMRC manuals state that a pattern of expenditure should be accepted where 3 to 4 years of payments have been made. We do think this is overly aggressive though..
Other Matters
Q Thoughts on making a pension contribution for a client early into the tax year, or better to delay until later in the TY once better idea of relevant earnings?
A It’s a judgment call, as many things can happen over the course of a calendar year. If the scheme you are using doesn’t offer a RECLS (see question above) then this would seem to be a potentially self-defeating transaction if excess contributions are made.
Q Using the Tax Relief Modeller Tool, where would the income from Unfunded Share Option Schemes appear?
A Our understanding is most are treated as employment income and relevant earnings so it could go in the employment income field.
Q Can you elaborate on the requirements for Fixed Protection 2016 and the need for registration by April 2025?
A For someone to apply for FP16 now, they would have had to have stopped (and continue to stop) any accrual in pension schemes, certain transfers and setting up a new arrangement. There was previously no application deadline on these, but amongst the LTA abolition Fixed and Individual Protection 2016 now have a 5 April 2025 deadline.
As a side note, that that applied for FP16 prior to 15 March 2023 and maintained this until 6 April 2023 no longer have any of the cessation issues above, and are therefore free to accrue benefits, make any transfers and set up new arrangements.
Q Why do you not cover Scottish tax etc?
A It’s just to show the theory, same thing with the Scottish rates. But the slides would look a lot busier with 6 tax bands! Our calculators use SRIT where it applies, and shows that us Scots get more of a discount on pension contributions (we don’t want to make the rest of the UK jealous!!).
Q Do you think they may take away the 25% TFC or reduce/limit it?
A Anything is possible. But we find it highly unlikely that they would take away and tax free cash entitlement anyone had already accrued.
Q What is your understanding of accessing TFC at 55? Some providers state that if the pension was opened before November 2021, they can still access at 55?
A That is not correct – you can only access your benefits at 55 after the rules change if you had a protected age which you can read about here.
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