Is 'Overlapping' tax relief allowed?

Milarky

By which I mean..

Can you get tax relief against the 'same £1' of income where you contribute to a pension and pay money under GiftAid to charity at the same time?

Pension tax-relief is now allowed against up to 100 percent of (earned) income. Presumably this is at your marginal rate of tax (40 percent on the 'top slice' but 22 percent below that)? Yet we all get tax allowanaces against some income so it is impossible to have paid tax on 100 percent of this income. Clearly some tax relief is then being given against 'untaxed' income.

No go to GiftAid. Here you have to have paid an amount of tax 'to cover' at least the basic rate reclaimed by the charity concerned. For instance if you only pay tax at the rate of 10% (because you have income less than your personal allowance plus the 10% band combined) you need to have taxable earnings of roughly £2.20 for every 78p you donate - so if you donate £7.80, the charity claims another £2.20 and you need to have paid this out of your rate of 10% - representing £22 of your gross income.

So the example where overlapping tax relief might arise is where you make any gift to charity and you also contribute to a pension. Suppose you pay £500 in tax altogether. And suppose you donate £312 to charity (so they recover £88). Then you try to make a contribution to your pension of £2300 - for which you pay £1794 and the company reclaims £506.

Clearly you had the tax 'to cover' initially (£500 paid, £88 recovered) and clearly you are entitled to receive £506 of pension tax relief even though you haven't quite paid that amount in tax.

My question is: are both claims therefore permitted at the same time?

Chrismaths

When you fill in a gift aid slip, you need to state that you pay BR tax, so no.

You can get tax relief on money you haven't paid tax on in a pension - even if you earn nothing in a year, you can still pay £3,600 into a pension and the exchequer will add the basic rate tax to it.

Aark

If you have £500 of tax to pay, the implications are:

a) That is more than the tax relief given to charity, so no additional tax is payable.

b) There is no requirement to have a tax liability of at least the tax relief given at source to pensions, so no tax payable there.

c) You are clearly not a higher rate taxpayer, so no additional tax relief is due at 18% (difference between 40% and 22%). In practice this is calculated by increasing your basic rate band.

Therefore there is no problem in making these payments.

Cook_County

Overlap relief has an entirely different meaning. Just thought you'd like to know!

The serious answer is that if you earn, say, £100,000 and pay £100,000 into a pension plan you'll owe zero tax so you'll have to pay the gift aid tax directly. However you might well qualify for child tax credit so will get the money handed right back to you...