6. Pensions

Question 1

Explain how tax relief is obtained on a personal pension scheme.

Answer 1

Basic relief: granted at the lower of

• gross contribution made: individual contributed 80%, HMRC contributes 20%.
• maximum annual amount (£3,600 or relevant earnings, higher of)

Additional relief: tax brackets extended by gross donations.

Question 2

Explain how tax relief is obtained on an occupational pension scheme.

Answer 2

Pension contributions are an exempt benefit.

HOWEVER

Both employee and employer contributions contribute to AA.

Question 3

What is the annual allowance?
What are the rulings?
What is the proforma for working out the available AA?

Answer 3

Annual allowance: maximum tax free pension contribution at £40,000.
Can carry forward any unspent AA from previous three years.

See physical cards - too complicated to draw on here.

Question 4

When do we restrict the AA?
To what £ can we restrict the AA?
What is the formula to restrict the AA?
What proforma must we use?

Answer 4

When adjusted income exceeds £150,000. Can be restricted to £10,000

(AI - 150,000) x 50% = restriction.

Net income from tax comp X
Employee contributions X
Employer contributions X
= Adjusted income X