Limits on Contribution Tax Relief
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Zebra
Posts: 6,702 Forumite
I've being doing my own research on the limits on tax relief for pension contributions, and just wanted to confirm that my understanding is correct.
For a final salary pension scheme, there are two limits on tax relief that apply.
1. A limit to gross pension contributions, whether employee contributions, ARC's, AVC's and personal pension contributions up to 100% of gross earnings, being salary and investment income, but not rental income.
Is that correct? If so does it also include employers contributions?
2. An annual allowance, currently £50,000, of pension savings, which is an increase in the value of the pension and is approximately the change in annual pension, corrected for inflation, and multiplied by 16.
Would appreciate some confirmation. Thanks.
For a final salary pension scheme, there are two limits on tax relief that apply.
1. A limit to gross pension contributions, whether employee contributions, ARC's, AVC's and personal pension contributions up to 100% of gross earnings, being salary and investment income, but not rental income.
Is that correct? If so does it also include employers contributions?
2. An annual allowance, currently £50,000, of pension savings, which is an increase in the value of the pension and is approximately the change in annual pension, corrected for inflation, and multiplied by 16.
Would appreciate some confirmation. Thanks.
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I've being doing my own research on the limits on tax relief for pension contributions, and just wanted to confirm that my understanding is correct.
For a final salary pension scheme, there are two limits on tax relief that apply.
1. A limit to gross pension contributions, whether employee contributions, ARC's, AVC's and personal pension contributions up to 100% of gross earnings, being salary and investment income, but not rental income.
Your tax relief, limit wise, is based on your gross salary. The amount of tax relief that you get is based on your taxable income.
So if you earned £35,000 you would get £35,000 worth of tax relief. However if your total taxable income is £50k ( including salary, investment income and rental income you would be entitled to higher rate tax relief.If so does it also include employers contributions?
No it's just your own contributions.2. An annual allowance, currently £50,000, of pension savings, which is an increase in the value of the pension and is approximately the change in annual pension, corrected for inflation, and multiplied by 16.
Would appreciate some confirmation. Thanks.
May also include any automatic lump sum.0 -
Your tax relief, limit wise, is based on your gross salary. The amount of tax relief that you get is based on your taxable income.
So if you earned £35,000 you would get £35,000 worth of tax relief. However if your total taxable income is £50k ( including salary, investment income and rental income you would be entitled to higher rate tax relief.No it's just your own contributions.May also include any automatic lump sum.0 -
2. An annual allowance, currently £50,000, of pension savings, which is an increase in the value of the pension and is approximately the change in annual pension, corrected for inflation, and multiplied by 16.
Would appreciate some confirmation. Thanks.
See http://www.hmrc.gov.uk/pensionschemes/understanding-aa.htm0 -
Thanks Zagfles.0
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For a final salary pension scheme, there are two limits on tax relief that apply.
1. A limit to gross pension contributions, whether employee contributions, ARC's, AVC's and personal pension contributions up to 100% of gross earnings, being salary and investment income, but not rental income.
Is that correct? If so does it also include employers contributions?2. An annual allowance, currently £50,000, of pension savings, which is an increase in the value of the pension and is approximately the change in annual pension, corrected for inflation, and multiplied by 16.
There are three different things, each with different calculation rules:
1. Earned income limit on the amount on which you can get tax relief. It's usually PAYE income.
2. £50,000 limit. Which isn't a limit on tax relief but a calculation of when you have to start paying a penalty and how much the penalty will be.
3. How much tax relief you end up getting, which is based on all income, earned and unearned.
Calculate all three independently because otherwise the different things included in each will get confusing.0
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