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).