These notes in Kaplan F6(UK) page 300 is kinda’ confusing for me. So please explain what it means.
Basic rate tax relief
-Basic rate tax relief is automatically given by deduction at source when contributions are paid, as an individual makes contributions net of the basic rate of income tax (20%)
-Contributions into a personal pension scheme benefit from basic rate tax relief, even if taxpayer is paying tax at the starting rate, higher rate or not paying tax at all.
Personal Pennsion Contributions (PPC’s) are deemed to have been paid net of basic rate relief being given at source (the same treatment as for gift aid payments) ie if a taxpayer wants his pension fund to be credited with £1,000 he need only place £800 directly into his pension fund and the goverment will then put in £200 equivalent to 20% of the gross sum – hence basic rate relief given at source when the contribution is paid.
If the taxpayer is also a higher rate or additional rate taxpayer then they achieve their additional relief by having their basic rate band and higher rate band limits of £35,000 and £150,000 extended by the gross amount of the PPC. Thus with our example above £1,000 of income that would have been taxed at 40% is now taxed at 20% and the same amount that would have been taxed at 50% is now taxed at 40%.
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