UK income tax relief on pension contributions (higher rate)

Question

My question is regarding UK tax relief on pensions, and there are a couple of questions. Say I earned £52,385, exactly £10k over the UK higher rate tax band of £42,385. My provider would usually claim back 20% tax relief automatically, and I believe it is up to me to claim any additional tax relief in my self assessment tax return.

Am I right in thinking the following things:

1. If I paid £10k into the pension this year, then I can claim a 20% additional tax relief in my self assessment on ALL of the £10k, so the pension provider would apply for £2k tax relief and I could get an additional £2k through my self assessment?
2. If I hadn't paid in anything last year, and I paid in £20k this year (assuming my salary, etc... was all exactly the same last year), could I apply for additional pension relief on the full £20k by carrying forward any of last year's entitlement, or not?

The Money Advice Service website (https://www.moneyadviceservice.org.uk/en/articles/tax-relief-on-pension-contributions) states the following: "you can carry forward unused allowances from the previous three years, as long as you were a member of a pension scheme during those years."

So, my final question:

3. Assuming I already have a pension, but do not want to use that one any more; If I were to open a NEW pension this year, can I still carry forward the unused allowance in the second question above if I pay money into a pension I have just opened? Strict interpretation of the quote above would suggest I can, but if anyone has more information on this, that'd be greatly appreciated.

Answer 1

The carry forward refers to the "annual allowance", which is a limit on the total pension contributions you can make and still get any tax relief at all.

However, the tax relief itself only applies to the year you make the contribution, and you can't carry the contribution itself back or forward to get relief at a higher marginal rate.

So, in scenario (1) you get £2K relief and your provider gets £2K relief. But the actual contribution you should make to your provider is £8K. They'll add in the £2K to make a £10K gross contribution, and then you'll claim back the £2K leaving you having contributed £6K net for the £10K gross contribution. The mechanism whereby the pension provider claims back the £2K is called "relief at source".

For scenario (2) you'll only get basic rate tax relief on the second £10K, because you'll have already reduced your gross income for the year below the higher-rate threshold with the first £10K.

If you managed to make pension contributions in excess of the annual allowance even considering carry-forward, then you'd get no tax relief at all on those contributions. Given that the pension would also get taxed when paid, this is not a good deal and people generally avoid exceeding that limit.

For (3) I'm not entirely certain, but I think you can carry forward in the circumstances you describe. I think the principle is simply that you could have paid into a pension scheme. In practice I also don't think HMRC will be worrying too much about this precise detail even if they have the opposite interpretation - it'd be a lot of work to check for not much gain.