Hello Sir,
I have got confused the difference between Annual limit and Annual Allowance of Pension contributions. The book says:
Annual Limit
Maximum Contribution attracting tax relief is higher of:
a) relevant earnings
b) 3600 GBP p.a
Annual Allowance is restricted to 50,000 GBP p.a.
Kindly give me your clarifications of these topics.
Regards,
Burhan Ismail
Ask the Tutor ACCA TX-UK
Annual Limit/Allowance
Hi,
this is very simple.
Max limit per year given is 50 000 (this for occupational / personal contributions made by either employee or employer)
In order to calculate amount that is valid for tax relief in fiscal year you must take the the greater figure from:
1) 3600 (by default available to everyone)
2) 100% of relevant earnings (which is employment income + trading income + income from FHL)
Also please note. If person hasn't used 50 000 from 3 previous year he can use it !
I advise you to look at question # 1 from June 2013. That's a good example.
https://www.accaglobal.com/content/dam/acca/global/PDF-students/acca/f6/exampapers/uk/f6uk_2013_jun_q.pdf
Hi burhanismael
The annual limit that you quote refers to the maximum amount of contributions that a taxpayer may make that will attract tax relief being restricted to their relevant earnings. A taxpayer's relevant earnings, for example employment income or trading profit may well however be in excess of £50,000 at which point the annual allowance (AA) then becomes relevant. If the contributions made within the annual limit exceed the AA (£50,000) plus any unused AA brought forward from previous 3 years then an AA charge will arise on the excess - see OT course notes chapter 10.
Thank you for the help and clarification.
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