10 October 2015

The information contained within the following news articles have been pre published. The articles were published on the dates indicated and the information contained within these issues include references to taxation, legislation, regulation and other issues or concerns that may no longer apply

Maximising Tax Relief


We are all familiar with the fact that contributions into pensions are eligible for tax relief at the investors’ highest rate.  In the past these rates have been 20% or 40%.  Obviously with the introduction of a 50% tax rate, we can now achieve 50% relief.


But is it possible to achieve more?

This depends on your own personal circumstances.  Basic rate relief (20%) is automatically claimed by the pension provider with any higher rate relief being claimed through an individual's self-assessment tax return.  Therefore depending upon how your income is made up it may be possible to achieve more than 40% or 50% relief.


For instance, if you own a share portfolio or are the director of a company and receive dividend income, you will receive this dividend net of 10% income tax, which covers your basic rate tax liability.  If all or part of the dividend income is subject to higher or additional rate tax, then you will have an additional income tax liability of 22.5% or 32.5%. 


By making a pension contribution, as part of the income tax calculation, your basic rate tax band is increased by the gross amount of the pension contribution.  The increased basic rate band will remove the additional tax liability of 22.5% or 32.5% on the dividend income as it now falls within the basic rate tax band.  You can then claim the higher rate tax relief through self-assessment.  This leads to effective rates of tax relief of up to 42.5% or 52%.


This route may not be suitable for all investors, as it may be even better to have your company/employer make additional contributions on your behalf instead.  Similarly there may be additional benefits for higher earners gaining back some of their lost personal allowances.  As you can see there are many issues to consider but also many potential benefits and therefore you should speak to Census Financial Planning to see what options are best for you. 

Paul Dixon

Chartered Financial Planner 


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