Tax (relief?) on pension contributions

Freecall

dunstonh wrote: »

Its funny you say that but I dont think so .........

The reason that I said that I would think that there are probably lots of people in this position is that it would fit the financial profile of someone who is semi-retired. They live off savings and investments but have a part-time job which generates a little income. They then put all of this into their pension scheme which the will start to draw on in a year or two.

The other group of people that comes to mind are those that run their own company. They pay themselves a small salary and take other income as dividends thus avoiding NI. They may then put all their salary into a pension.

These are not unusual positions to be in and would certainly come under the scope of this issue being discussed.

Freecall

I have just thought of another typical group to which it would be relevant.

One spouse earning good income to support the family while the other has a part time job generating a small income upon which they are not dependent for living. They could put the whole lot into a pension scheme and get the relief (assuming that this is the way it works).

xylophone

http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM05200020.htm
"The maximum amount of contributions on which a member can claim relief in any tax year is the greater of

the ‘basic amount’ – currently £3600, and
the amount of the individual’s relevant UK earnings that are chargeable to income tax for the tax year.
Where a member’s relevant UK earnings chargeable to tax are less than £3,600, tax relief on the amount of any contribution over the level of their earnings up to the £3,600 limit can only be given if the contribution is paid to a pension scheme that operates the relief at source (RAS) system.

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm05101320.htm
"Which individuals can use RAS?
Any member making a contribution to a registered pension scheme that operates RAS must make that contribution net of basic rate tax. A third party (other than the employer) who makes a contribution on behalf of a member of that scheme may also make that contribution net of basic rate tax. However only a member may claim higher rate tax relief on that third party contribution. In other words, the contribution is treated as if made by the individual who is the member of the scheme.

Points to note on RAS
[s191(7)] [s192(5)] [Para 40 Sch 36]
If a member has relevant UK earnings of less than basic amount of £3600 but is making a contribution of more than the level of their earnings RAS is the only method by which the member can get tax relief on the excess contribution (up to £3600).

If a member is entitled to an age related personal tax allowance their total income for the purposes of section 257(5) and section 257A(5) ICTA 1988 (level of income where age related personal allowance may be reduced) is reduced by the amount of the grossed up contribution paid to a scheme operating RAS.

Relief for contributions made to retirement annuity contracts is not required to be given under the relief at source (RAS) system; it can be given by making a claim. The decision rests with the RAC provider."