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If i have a question with gift aid and pensions which of the 2 should I use to extend the band? Should I use both Gift aid and Pension to extend the band?
Yes .u must use both to increase the band and also u can get tax relief on personal allowance
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Normally they wont give you both i a question..but ifever u get both use both to extend the bands..!
Hi hammadnz, yes you must extend both the basic and higher rate band limits by the gross amounts of both gift aid payments and PERSONAL pension contributions before computing the income tax liability of the taxpayer.
There are 2 separate tax issues that arise when dealing with gift aid and personal pension contributions:
1) As in my previous reply the gross amounts of these payments will increase the basic rate and higher rate band limits. This is only relevant of course if the taxpayer has taxable income in excess of 34,370 and is therefore a higher rate taxpayer! In the example you quote the pensioner’s income is well within the normal basic rate band limit so any extension of that limit is entirely irrelevant in the Income Tax Computation!!
2) If dealing with a pensioner then a higher personal age allowance is available but this is restricted if their “adjusted net income” exceeds the income limit of 25,400, then as you quote any such payments are deducted from net income to derive the “adjusted net income” figure.
The “adjusted net income” calculation is also required when any taxpayer has net income in excess of the 100,000 income limit as a reduction or indeed a total withdrawal of the standard personal allowance may then be required.
Adjusted net income must therefore be computed when dealing with a taxpayer aged 65+ if their net income exceeds 25,400 and for any taxpayer whose net income exceeds 100,000. Work the examples in the course notes in conjunction with the online lecture.I am so happy i found this answer because i ave been struggling with this for some time.
so i understand:
If the taxpayer’s P.A will be impaired by him earning over 26 100 and 100,000 in (2013/14), then i will need to use the Gross contribution to adjust his N.Income?
However,are you saying that fo an individual earning 115,000, i still need to adjust his Rate bands AS WELL AS adjust his Net income for the gross pension/gift aid contribution?
Please help as I am sure this bound to be on the exam. I get everything else but this keeps beating me.
Yes! If the taxpayer has net income of 115,000 and gross gift aid and personal pension contributions of 10,000 then his adjusted net income will be 105,000. As this exceeds the 100,000 income limit by 5,000 his PA of 9,440 will be reduced by 2,500 but his basic rate band limit will also be increased by 10,000 to 42,010. Hope this resolves your problem – have you read the OT course notes and watched the lectures?
For any other students reading my previous reply to the above question please note it was dated May 2013 and thus the use of the 2012/13 figures!
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