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Maximum gross Contributions – Pension Scheme

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA TX-UK Exams › Maximum gross Contributions – Pension Scheme

  • This topic has 2 replies, 2 voices, and was last updated 9 years ago by disharani.
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  • Author
    Posts
  • December 14, 2015 at 9:49 pm #291808
    disharani
    Member
    • Topics: 7
    • Replies: 8
    • ☆

    Hello Sir

    Please find below the example 1 from Pensions chapter
    I wish to ask you a query in this.

    Aston made the following gross amount of contributions into his pension scheme:
    2011/12 £62,000
    2012/13 £30,000
    2013/14 £25,000
    Aston has an annual salary of £120,000.
    Compute the total pension input allowed for Aston for the 2014/15 tax year

    Answer to Example 1

    The total pension input allowed is made up as follows:
    AA for 2014/15 40,000
    Unused AA b/f
    – 2011/12 fully used nil
    – 2012/13 (50,000 – 30,000) 20,000
    – 2013/14 (50,000 – 25,000) 25,000
    Maximum gross contribution 85,000

    Answer:
    It can be seen from the above working that the current year’s AA is used first and then unused AA brought forward is used on a FIFO basis.

    If therefore in 2014/15 Aston made a gross contribution of £55,000, this would be less than his relevant earnings for the year (£120,000)
    and would therefore qualify for relief and would utilise all of the 2014/15 AA of £40,000 and £15,000 of the £20,000 unused AA brought
    forward from 2012/13.
    The remaining £5,000 would be carried forward for one more year to 2015/16. If a £30,000 payment were then made this would be within
    the AA for 2015/16 so no unused AA brought forward would be utilised.
    The £5,000 unused AA from 2012/13 would now lapse so that in 2016/17 after that year’s AA is used there would be unused AA brought
    forward for use as follows:
    – 2013/14 £25,000
    – 2014/15 £NIL
    – 2015/16 (40,000 – 30,000) £10,000

    Query:
    I understood only the max contribution of 85000

    Please help me understand why even if there is a gross contribution of 55000 after considering the cap of 40000 for the year we are also considering 15000 more from 12/13 year.
    And if so we are considering the contribution of 12/13, why we didnt consider the whole of 20000 and also the whole of 25000 of 13/14 because we can go upto the relevant earnings of 120000 ?
    Its a kind confusing
    Please can u give a clear idea of how it works.

    December 15, 2015 at 11:02 am #291843
    Tax Tutor
    Member
    • Topics: 2
    • Replies: 3965
    • ☆☆☆☆☆

    With respect I do not think you have correctly understood the example. The example states that there is a gross contribution in 2014/15 of 55,000 – this is clearly before considering the AA of 40,000 for the 2014/15 tax year! The gross contribution is NOT as you say above “AFTER considering the cap of 40,000”!!
    Hope this clarifies situation.

    December 16, 2015 at 7:31 pm #292024
    disharani
    Member
    • Topics: 7
    • Replies: 8
    • ☆

    Thank You so much Sir.

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    Posts
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