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No Tax Relief on Contributions above £3,600 per Year

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Don't know if this has been discussed already. I have not found it on a search.

According to the HMRC website there was a change in April 2006 that meant any member contributions above £3,600 per year paid into a pension fund would now not be entitled to tax relief anymore.

http://www.hmrc.gov.uk/rates/pensions.htm

I thought the government were trying to encourage us to pay into a pension fund? What kind of encouragement is this?
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Comments

  • reddevilled
    reddevilled Posts: 426 Forumite
    Part of the Furniture Combo Breaker
    Tax relief is limited to relief on contributions up to the higher of
    100% of your UK taxable earnings, and
    £3600.

    So if you earn £3,600 or less you can still put £3,600 in, otherwise it is 100% of your earnings subject to the annual limits
  • dealsearcher
    dealsearcher Posts: 756 Forumite
    Sorry the wording confused me. Of course for normal situations that is fine. In my situation I am not earning at the moment, but am contributing to a pension fund. Therefore if I were to contribute over £3,600 per year I would lose the tax relief. So it is not in my interest to put over £3,600 per year into a pension fund. There is a trap here for the few like me.
  • jh2009
    jh2009 Posts: 362 Forumite
    Just to clarify, the £3,600. includes the tax relief of 20%.

    So someone unwaged, or who earns below £3,600 pa, can pay up to £2,880 per year, and tax relief tops this up to £3,600.

    Im sure if in any doubt your pension provider can confirm this.
  • dunstonh
    dunstonh Posts: 119,645 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    If you earn over £3600 a year then you will get tax relief on 100% of what you earn (note higher rate tax has some restrictions - basic rate doesnt).

    The £3600 limit is for non earners. They can pay more than £3600 in but they dont get tax relief on the amount above £3600.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • bendix
    bendix Posts: 5,499 Forumite
    Tax relief is just that - tax relief. If you're not earning the money, then you're not paying tax on it, are you? In that case, why would you expect to get relief on it?

    Seems eminently logical to me.
  • Paul_Herring
    Paul_Herring Posts: 7,482 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    Sorry the wording confused me. Of course for normal situations that is fine. In my situation I am not earning at the moment, but am contributing to a pension fund. Therefore if I were to contribute over £3,600 per year I would lose the tax relief.
    What 'tax relief'? If you're not earning, you're (probably) not paying tax. If, as a non-earner/non-tax-payer you contribute £2,880, you get extra money off the government to top it up to 3,600. This is to encourage non-earners to contribute to a pension.

    Since you (probably) don't pay tax, why are you expecting even more 'tax relief' over that limit?
    So it is not in my interest to put over £3,600 per year into a pension fund. There is a trap here for the few like me.
    Where's the 'trap?'
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
  • bendix
    bendix Posts: 5,499 Forumite
    Ummm . isnt that what I just said, Paul? ;-)
  • Paul_Herring
    Paul_Herring Posts: 7,482 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    In case you think I'm stealing your thunder Bendix - I re-iterated what you said, and made a few important points which you omitted, since making those points in isolation would have made no sense what so ever.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
  • jamesd
    jamesd Posts: 26,103 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    The workaround for this is to use the stocks and shares ISA allowance, which is almost three times higher than that pension limit.
  • dealsearcher
    dealsearcher Posts: 756 Forumite
    edited 29 May 2009 at 8:02AM
    jamesd wrote: »
    The workaround for this is to use the stocks and shares ISA allowance, which is almost three times higher than that pension limit.

    Thanks for that. Yes that would make sense as an alternative.

    I see a couple of others are apparently not bothered by Gordon Browns stealth erosion of the tax allowances over the years. People who are unemployed for a year or more are disadvantaged because if they save more than £3,600 in a pension fund they will not now get any tax relief. These people are already disadvantaged because they are temporarily unemployed and should actually be encouraged to save for their pension and not discouraged. This has changed from before April 2006 to our detriment and is another stealth erosion of benefits or tax allowances.

    We are told how we should save for a pension and that the biggest risk is to the self employed, who are more likely to be temporarily unemployed for periods of time. This action shows that, as usual, the government says one thing but their actions actually demonstrate the contrary.
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