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It is mentioned in the Page No- 69 that the Maximum Contribution towards the pension scheme that will attract the tax relief is highest of 3600 or Relevant earrings of the tax payer.
But in page no No- 70 Annual allowance it is stated differently . Ie. 40000 is the allowance annual allowance for tax relief is for 2015-2016.
I am little confused with these limits. can you clarify how these limits will work with the below example.
Mr. X earns 65000 in the year 2015-2016 . What is the allowable contribution towards pension scheme for tax relief for Mr. X ?Please explain
These are 2 separate issues.
Firstly and usually based on the net relevant earnings (NRE) of the taxpayer we compute the maximum amount of contributions that will attract tax relief, BUT then secondly we determine whether that amount of pension contributions paid falls within the available annual allowance(s) (AA) of the taxpayer.
If the amounts paid exceed the available AA then the AA charge must be computed.
In your example the taxpayer has NRE of £65,000 and therefore the maximum gross contributions attracting relief will be £65,000. If this amount was paid into the pension scheme then it exceeds the AA (£40,000) of the tax year by £25,000. If the taxpayer has at least this amount of unused AA brought forward from the previous 3 tax years then there will be NO AA charge.
If however the unused AA b/f was only £10,000 then an AA charge of £15,000 will apply.
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