Stand-out Q – income tax…


THU, 04 DEC 2014

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By making a pension contribution of £70K net, what’s the effect on the client’s income tax position if they have taxable earnings of £149K in 2014/15?

It’s assumed that the client has carried forward unused annual allowance so receives tax relief on the full pension contribution. Their income tax liability will be £53,227 if they don’t make a pension contribution of £70,000 net, as shown below. As their adjusted net income exceeds £120,000 they lose the entire personal allowance of £10,000.

Table 1 for blog

However if the client makes a pension contribution of £70,000 net their income tax liability will be reduced to £31,727, as shown below. The pension contribution reduces their adjusted net income to below £100,000 reinstating their entitlement to the full personal allowance of £10,000.

Table 2 for blog

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