Get tax relief on pension contributions.
Over the years measures have been introduced to encourage us to save for retirement. Below is a brief explanation of the tax relief available on pension contributions.
You are entitled to tax relief at your highest rate of tax on contributions paid into your pension. Payments into pension schemes are sometimes deducted from your salary by your employer before the deduction of Income Tax. In this case, you are automatically given tax relief at your highest rate of tax and need do nothing further.
Payments into a personal pension are paid net of 20 per cent tax. For example, a payment of PS80 means that PS100 is paid into your pension after grossing up for basic rate tax.The new Scottish rates of tax have thrown up some anomalies.
Depending on the level of income, Scottish taxpayers who earn up to PS43,430 per annum may pay tax at 19 per cent, 20 per cent or 21 per cent. If you pay tax at 21 per cent you are entitled to the additional one per cent tax relief on pension contributions. Relief can be claimed on your selfassessment return if you complete one, otherwise, you can contact HMRC to claim the additional relief.
Those who pay 19% tax will benefit because HMRC will not seek to recover the additional 1% relief.
As tax relief at source is given at only 20 per cent, those who pay tax at the higher rate and who pay into a personal pension, where relief is not given through the payroll, have to contact HMRC to obtain the additional tax relief.The higher rate in Scotland is 41 per cent or 46 per cent, so Scottish taxpayers will now be entitled to additional relief of 21 per cent or 26 per cent.
Much has been reported in the press recently about doctors being subject to additional tax on pension contributions but the rules apply to anyone who earns more than PS110,000 per annum.
The rules are complex but for those who earn more than PS110,000 the amount of tax relief available on pension contributions may be restricted and there is a tax charge on excess contributions. If you earn more than PS110,000 and make pension contributions (including employer's contributions) of more than PS10,000 we advise you to seek professional advice.
for more details on the tax relief available and for effective tax planning for you and your business on 01786 460 030, email@example.com or at Campbell Dallas, 15 Gladstone Place, Stirling, FK8 2NN.
Future planning Seek advice to make your savings grow
Happy to help Marita Scott