Pension Tax relief on all income?

MoneyTown

Yes, thanks Clapton. That's what I wanted to know.

bigbloke45

Moneytown, the "straddling" just means obtaining tax relief on a pension contribution that's part 40% and part 20%.

In Clapton's example this would happen if you contributed more than £14,165 as any contribution above this amount would only be relieved at 20% (since you would have used up all your higher rate relief).

But, also bear in mind that savings interest still qualifies for 10% tax, up to limit that was withdawn for earned income, so you need to claim back tax on your savings (it's not done automatically). Not a great deal, but why let Alistair Darling waste it when you could spend it on a great night out!

bigbloke45

Mark 2.0 Yes. There is no point in contributing more than your taxable income. So always take off any personal allowances beforehand.

There's no tax relief if no tax has been paid.

whu

Hi - could you just clarify the point on reclaiming interest on savings - I though if you were a 40% tax payer you had to apy the additional 20% but didnt realise you could claim some back - how and on what basis?
Cheers

bigbloke45

Sorry, I think I've been misinformed by the Inland revenue!


Income Tax: taxable bands 2007-08
£ per year
2008-09
£ per year
Starting rate: 10%
£0-£2,230


Basic rate:22%
£2,231-£34,600
Basic rate: 20%*
£0-£36,000
Higher rate: 40%
Over £34, 600
Higher rate: 40%*
Over £36,000

* There will be a new 10% starting rate for savings income only, with a limit of £2320. If an individual’s taxable non-savings income is above this limit then the 10% savings rate will not be applicable. There are no changes to the 10% dividend ordinary rate or the 32.5% dividend upper rate."

I was told (I thought ) by the Inland Revenue that the 10% tac band on savings could still be taken into account when calculating tax payable. But now I'm confused. Does anyone out there know the correct positon?

I'm going to 'phone the taxman again to see if I can get a straight answer.

In the meantime, I'm sorry if I've muddied the water and got some peoples hopes up.

whu

no probs - look forward to hearing once HMRC have clarified the position

CLAPTON

the 10% tax band for savings only applies to people with only savings income or people with very low earning (i.e. less than 6035 + 2320)
Once your earnt income rises above 8355 then you pay 20% on all your savings' interest

dunstonh

Also remember that if you have children, then pension contributions reduce your earned income for working/childrens tax credit purposes. The maximum effective relief can be as high as 72% if you fall into that sweet spot. Although typically it would be 50-60%.

bigbloke45

whu, I'm afraid that CLAPTON is right. When I asked the revenue it was just after the budget and I don't think that they understood the question. Sorry again.

I'll try and double check my facts before leading with my mouth next time.

Thanks, CLAPTON.

sunsol

Does anyone know if the 18% tax paid on capital gains can also be reclaimed on pension contributions.

Example:
I sell some shares and realize a capital gain of ₤19,600 which after deduction of the ₤9,600 allowance leaves me with ₤10,000 on which I will need to pay ₤1,800 CGT (i.e. 18%). If I then put an extra ₤10,000 into my pensions could I effectively offset this tax liability?

Thanks.