#20 George (from OT lecture notes).

Hi, please can you advise re #20 George (from OT lecture notes).

I can’t see how this is calculated: “Note 2 Osbourne has an adjusted net income of £110,000 (200,000 – 90,000) which exceeds £100,000 and thus his personal
allowance will be reduced by £5,000 ((110,000 – 100,000) / 2).” Is the adjusted net income not £210,000? Making his person allowance £1500? Please confirm if this is an error, or I have made a mistake?

Thanks, question and answer below for reference.

QUESTION
(a) George is employed by Exchequer plc earning an annual salary of £100,000 and has made the following gross personal pension
contributions since first joining a scheme in June 2015:
2015/16 £28,000
2016/17 £23,000
During 2017/18 he made a cash payment of £48,000 into the pension scheme and wishes to know whether tax
relief will be available in full on this amount and what will be the maximum contribution he will be able to make in
2018/19 for which tax relief will be available without incurring any charges.
(b) Osbourne is an employee of Chancellor plc with an annual salary of £170,000pa. He has made regular annual gross personal
pension contributions of £60,000pa other than in 2016/17 when his gross contributions were only £10,000. In 2017/18 Osbourne
has made gross personal pension contributions of £90,000.
Compute Osbourne’s Income Tax liability for 2017/18.

ANSWER
(b) Osbourne – Income Tax Computation 2017/18
£
Employment Income 170,000
Annual Allowance Charge (note 1) 40,000
210,000
Personal Allowance (note 2) (6,500)
Taxable Income 203,500
Income Tax Liability
123,500 @ 20% 24,700
80,000 @ 40% 32,000
203,500 56,700
The basic and higher rate bands are extended by the gross amount of personal pension contributions (33,500 + 90,000) = 123,500
and (150,000 + 90,000) = 240,000
Osbourne has employment income of £170,000pa and hence all of the £90,000 pension contribution will attract tax relief.
Note 1 Osbourne with employment income of £170,000pa has a tapered annual allowance for 2017/18 and 2016/17 of £30,000
(40,000 – ((170,000 – 150,000) / 2) and therefore £20,000 (30,000 – 10,000) brought forward unused allowance from 2016/17.
Therefore an Annual Allowance Charge will arise of £40,000 (90,000 – 50,000)
Note 2 Osbourne has an adjusted net income of £110,000 (200,000 – 90,000) which exceeds £100,000 and thus his personal
allowance will be reduced by £5,000 ((110,000 – 100,000) / 2).