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I understand that when an individual contributes to a pension scheme outside of his employer’s we extend the basic rate band by the gross contribution. BUT if his contribution his more than his income, what is the treatment? do we still add the whole amount or the 3600 rule applies here? if yes, wht exactly is the treatment???
thank you for ur help! 🙂
@gm2191
I’m not the tutor but I think I can answer your question 🙂
The general rule is – they can contribute the greater of $3,600 or 100% of their earnings (earnings here means Trade Income, Employment Income and Rental Income from Furnished Holiday Lettings only). If they contribute anything higher then they don’t get tax relief on the excess of their earnings.So say earnings is 200,000 and they contribute 220,000 to their personal pension scheme. We would extend the basic and higher rate bands by 200,000 ONLY so they do not get tax relief on the remaining 20,000.
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