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Max pension contribution with tax relief

Client wants to know what the max contribution he can make as a one off contribution. Am I righ?

Client wants to know what the max contribution he can make as a one off contribution.  Am I right in the following?  (Client is a sole director, employed elsewhere, takes no salary, just 1 large dividend)

He can make any contribution he likes, but to get tax relief, there are 2 limits.   1. The annual allowance, limited to earnings or 40k, whichever is lower, plus any carry forwards.  There is a tax charge if this is exceeded.  Client has full carry forwards so this is useful.  

2. The contribution is limited to earnings.  As dividends taken from company, the pension contribution is limited to his other salary (20k).  No carry forwards exist for this limiting factor.

So, even though no contributions were made in the previous 3 tax years, he is essentially limited to making a contribution of 20k (if he wants tax relief, ie, the government to top up his net contribution).

Is that correct?  20k is max, with tax relief.   Or, he can pay more, but no tax relief?

He has a pension adviser, but as it involves "tax relief", I think he wants my answer so that he can compare the answer to that of his pension adviser.  

Just to be clear, only income is 20k salary from job and 1 x large divvy.  (The size of the divi depends on how much can be put into the pension pot).

Thanks!

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By ms998
25th Sep 2017 14:48

You considered the company making a pension contribution?

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By Ruddles
25th Sep 2017 15:34

Subject to point about an employer contribution, you are correct.

He can pay anything up to the amount of the carried forward and current annual allowances without incurring a charge. But he will get tax relief only on the amount of his current year earnings. If he does pay in more than his earnings, he will need to make sure that his pension provider is aware.

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25th Sep 2017 16:04

Level of total income may be in point, as well. That £40,000 could just as easily be £10,000.

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By Ruddles
to SteLacca
25th Sep 2017 16:16

Quite so - rearrange "The size of the divi", "depends on" and "how much can be put into the pension pot"

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25th Sep 2017 17:13

Thanks ms998, Ruddles and SteLacca.

Re. the possibility of a company contribution, yes, I am including this as an option aswell, but as the client doesn't draw any salary from the company whatsoever, I am still pondering what would be the highest amount possible, without falling foul of the W&E rule.

It is niggling me, but as the entire company turnover is generated by the sole director, I can't see that HMRC could argue that a 40K company contribution would not be W&E. I am thinking out loud. Indeed 40K would be justifiable - it is just that the remuneration would be a pension contribution instead of salary, so I can't see there being an issue re. W&E?

Any thoughts on that aspect are also welcome.

Thanks guys. Being a sole partner is a lonely world sometimes!

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