"relevant income" calcs anti-forestalling

dogswallop

2010/2011 - My basic salary is 65K, 10% p.a. of this figure is salary sacrificed, (so, my employee pays in to my pension plan 6.5K for the sacrifice). In addition, my employer also contributes another 7% p.a. to my pension plan. These payments are monthly.

This year I received other taxable income as a one off payment of 70K.

If I pay an additional lump sum of 30K into my pension before year end, will I be able to claim tax relief on that 30K at 40% and also, will I effectively get my personal allowance back?

Confuzzled....

JOHNGT

OK your taxable income is £65K minus £6.5K = £58.5K.

Add to that your additional £70K and your total taxable income is £128.5K. If the salary sacrifice was set up after 22nd April 2009, then you have to add the £6.5K back on taking your relevant income up to £135K.

The anti-forestalling rules allow you to deduct up to £20K in personal contributions in arriving at the £130K limit, so you can actually have taxable income of up to £149,999 and still have relevant income of less than £130K for the purposes of anti-forestalling rules. The salary sacrifice contributions of £6.5K are employer contributions so can't be deducted. However, you are not caught anyway because your relevant income is below £130K (assuming salary sacrifice was set up pre 22/4/09), without deducting personal contributions.

You will also need to check that your total relevant income was not above £130K in 2008/09 and 2009/10 as you could be caught if that is the case.

If you paid £30K in you will get 40% relief (and more) on all of it. Because you lose your personal allowance of £6475 at the rate of £1 for £2 of income over £100K, by paying a pension contribution of £30K, you will take your taxable income back down to £98.5K, reclaiming your personal allowance in the process.

This means you get effective tax relief of 60% on £12950 (i.e. 2 times personal allowance) of your contribution and 40% on the other £17,050.

Remember and close your pension input period before 6/4/11 otherwise you will be using up a big chunk of your £50K annual allowance for 2011/12. You can do this by writing to your scheme administrator. If you are in a GPP, this is the pension provider.

georgehere

JOHN GT
..that Personal Allowance tax recovery point you bring up is the first time I have ever seen anyone mention it - for those hovering around the trigger points for personal allowance reductions and 50% tax rates who also may have flexibility in what they can contribute to their pensions it sounds interesting.
Food for thought certainly - thanks.