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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.aAnnual Allowance is restricted to 50,000 GBP p.a.
Kindly give me your clarifications of these topics.
Regards,
Burhan IsmailHi,
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.
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.
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