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Pensions - Coggle Diagram
Pensions
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Extraction:
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Capital Extraction: lifetime allowance is 1,073,000.
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Employee contribution in occupational pension is an allowed expense from employment income P&L of employee. In this way we will get tax relief from it
Employer's contribution in occupational pension is an "Exempt benefit" for the purpose of employment and in this way employee will get tax relief on it
Personal pension (not an allowed expense) has 3 steps:
1) Grossing up (80% LIKE GAD)
2) ANI reduction
3) Band extension
The annual allowance is the Max allowed relief of pension. If your TRC is greater than AA then you need to return the tax on excess and excess will be treated as non savings income. The AA for 23/24 is 40,000 but is dependent on adjusted income. Adjusted income is the sum of total net income+ Ee contribution in occupational pension + Er contribution in any pension
Relevant earrings is the sum of trading income, employment income and income from furnished holiday letting. Personal pension relief is only available, of gross contributions are paid from relevant earrings. If RE is less than 3600 then RE will be replaced by 3600. Personal pension amount by which we extend band is called TRC. TRC is the lower of RE and PPC. In all cases ANI reduction is always done through GROSS PPC
Unused AA for any fiscal year can be carried forward and used for the next 3 fiscal years. In any fiscal year always use current year AA and then the AA of the earliest year. If individual is not a member of registered pension scheme in any fiscal year then that fiscal year unused AA cannot be c/f
If you are asked to calculate personal pension contribution paid then just multiply TRC (relief amount) by 20% and deduct it from Gross PPC. You will get net contribution paid