If you have income over £100,000, you will lose £1 of your Personal Allowance for every £2 of income over this amount. This means those of you with income in excess of £116,210, (for tax year 2012/13) will completely lose your Personal Allowance.
How might I get 60% tax relief on a pension contribution?*
- Let’s assume you have earning of £116,210 and no other income.
- Your overall tax liability on the top £16,210 slice of salary is effectively £9720 or 60%
- A gross personal pension contribution of £16,210 will reduce your net income down to £100,000
Result – the full Personal Allowance is retained and the overall tax liability is reduced. Therefore the effective tax relief on a £16,210 pension contribution is £9,720 (60%)
A contribution could be made using salary sacrifice to make it even more tax efficient or if a larger contribution is to be made then the carry forward of unused allowance may be used.
*Subject to your existing individual pension position.
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The information contained is targeted at consumers based in the UK. It should not be taken as advice or guidance, and Paradigm Capital Limited does not guarantee the accuracy or content provided. If you wish you to receive financial advice, please contact Paradigm Capital as above.