Don’t look a pension gift horse in the mouth
Created: Thursday, 01 September 2016 08:54
Pensions get their fair share of bad press, but, if you look beneath the headlines you will see there are some very generous tax advantages.
Just a quick refresher; pension contributions qualify for tax relief on up to £3,600 or 100% of relevant UK earnings, whichever is the higher, up to a maximum of £40,000 per year, although carry-forward relief is available.
Tax relief is normally given at source, for example, you might make a contribution to your employer scheme directly from net pay (after tax & NI). If you contributed say, £500 (per month) the pension provider will add basic rate tax relief of £125, making a total gross contribution of £625.
This is fine, if you are a basic rate tax-payer, but what if you have earnings subject to higher rate tax (above £43,000 tax year 2016/17)?
Well, you can claim an additional 20% tax relief on contributions in respect of earnings above the higher rate tax threshold. Here’s an example -
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