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Hi Sir/Madam,
Since occupational pension tax relief is given at source in full unlike personal pension which is given as a basic rate at source and not shown on the income tax computation except when the tax payer is a higher rate or additional rate tax payer. Why doesn’t the proforma income tax computation in Chapter 2 not show the occupation pension tax relief like qualifying interest loss relief bf? Isnt the Salary in the exam questions is stated gross?
Query 1
Illustration 1 Chapter 9 states that Gross income is shown as £25,000 in the tax computation less occupational pension of £1,000. My query is, why is occupational pension not shown on the proforma income tax computation in chapter 2. I know the BR (20%) personal pension is not shown since it is automatic and only shown for HR & AR tax payers.
Query 2
There is a rule that states that individuals who invest into pension schemes are entitled to tax relief for the contributions they make into the scheme limited to:
(i) 100% of relevant earnings (employment income, trading profits & FHLs)
(ii) £3,600 of gross earnings (to those without relevant earnings)There is also another rule on Pension annual allowances annual allowance stating that most an individual can save into their pension schemes before having to pay tax is £60000.
Am seeing a conflict in these two rules. The first one limits tax free contributions to 100% of relevant earnings while another caps tax free contributions to £60000 per year.Apologies for my silly questions.
Pesnions are complicated.
An occupational pension is deducted directly from the salary by the empolyer thus giving tax relief at all levels. This pension does not necessarily appear in any tax computation, it depends on the questions and it does not need to be taken into account for the BR/HR band extensions.Private pensions are paid net by the individual and the pension company claim the tax. 20% relief is therefore claimed automatically. To get further relief at HR/AR the GROSS pension extends these rates giving relief as appropriate rate. It does not appear in the computation – only as a working to extend the bands.
Everyone can give 100%/£3600 into a pension fund but it might not attract tax relief. That amount that does attract relief depends on the annual allowance.
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