Personal pension contributions, pls help

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    saamih
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    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.


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    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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