Now, a question on Lifetime Allowance from reader Derma.
Derma shares: “I am retired, living on occupational pension income and investment income. I have not been in paid employment for circa five years now. I am well under the age 75 limit for pension contributions.
“I understand that, despite having no employment income, I can still contribute £3,600 gross to a registered pension scheme (e.g. a SIPP) and obtain tax relief in the usual way.
“What I am less clear on is whether or not, after contributing the maximum £3,600 this year to a SIPP, I can also make use of the carry forward rules to contribute £3,600 for each of the last three tax years, so £10,800 carry forward in total. I have been a member of a registered pension scheme all these years.
“Now that Labour seem to be backing away from reimposition of the Lifetime Allowance, the option to do this looks more viable to me.”
Mike responds: “I know this is confusing, Derma, but the three years carry forward rule you mention is to allow pension contributions to exceed the £60,000 annual allowance in some cases. The amount of tax relief you can obtain in a single tax year is usually limited to 100pc of your earnings, or profits if self-employed.
“As you have said, however, you are nevertheless entitled to make pension contributions of £3,600 each year and obtain tax relief even if you have no earnings or profits. In practice, you would pay £2,880 and your pension fund would claim the additional £720 from HMRC for your SIPP.”