CH 9 Pensions

Question 1

Tax relief on pensions depends on?

Answer 1

Whether it is a occupational or a personal pension scheme

Question 2

What is an occupational pension scheme, and what are the requirements for this?

Answer 2

This is something that employees are automatically enrolled in by their employer.

To be eligable:
- Must work in UK
- 22 and above
- Earn more than 10k per annum

Question 3

How is income tax relief automatically given to OCCUPATIONAL pensions?

Answer 3

Because income into pensions is deducted before PAYE is applied (hence deducted straight after salary to get the net income, THEN we would deduct PA and tax )

Question 4

An employers contribution to an employers pension scheme are?

Answer 4

Allowable trading expense on a PAID basis

Question 5

How is tax relief given to personal pension schemes?

Answer 5

Similar to Gift Aid, we gross up the BRB by 100/80 * the amount invested into the pension

Question 6

Carvela has employment income of £70,000 for the tax year 2023/24. During the tax year she pays contributions of £8,000 into a personal pension fund.

Calculate Carvela’s income tax liability for the tax year 2023/24

Answer 6

8000 * 100/80 = 10,000

Original BRB:37700
New BRB: 47700

Employment income : 70,000
Less: PA (12570)
Taxable income 57430

BRB: 47700 20% (9540)
Remainder 9730 40% (3892)

Total income tax liability = 13432

Question 7

There is a limit on the amount of tax relief an individual can have on their pension funds.

We take the lower of?

Answer 7

Tax relief is the lower of:

1. We first look at the gross amounts put into a OPS and a PPS. Note that OPS are already grossed up, hence we just gross up PPS by * 100/80.
2. We secondly take the maximum annual amount, which is the greater of
3. 3600
4. 100% * relevent earnings (taxable trading profits + employment income)

Question 8

Separately we have an annual allowance of 60,000. What is this in relation too?

Answer 8

This is the limit of contribitions by ALL individuals, i,e including those from employer as well as individual

Question 9

Any un used amount can be brought forward when?

Answer 9

Any un used amounts within the last 3 years can be brought forward on a FIFO basis

Question 10

When is an individual able to start drawing out money from their pension fund?

Answer 10

When they reach pensionable age - 55

Question 11

How much of a tax free lump sum can be taken out of this pension?

Answer 11

25%

Anything above this taken out will be taxed accordingly