Personal Pension Contributions & Basic Rate Limit

[tbrain]

Hi,

As we approach the end of 11/12 tax year, as always I like to make sure that I have maximised the amount that I can pay myself before incurring any higher rate tax liability.

Scenario:

This year I have paid myself £7367 in directors fees, and £31800 net or £35333 gross dividends, a total of £42700. Once I've considered charitable contributions of circa £250 in my self-assessment tax return, this will mean that I incur zero higher rate tax liability.

However, during 11/12 I have started contributing to a pension scheme, making personal pension contributions of £5893.60 net, or £7367 including tax relief (i.e. the same amount as my earnings, not including dividends). On top of this, my company has also contributed £7340.50, which has obviously reduced my corporation tax liability.

Question:

Does the fact that I am making personal pension contributions increase my basic rate limit?

e.g.

£7475
£35000
£250 (Charity Contributions)
£7367 (Personal Pension Contributions)

totals £50092. Is this calculation correct? I also have a query in with the accountants, but a second opinion is always useful as I don't want to be clobbered with a big higer rate tax bill!

Thanks.

[Nixon Williams]

Your basic rate band will also be extended by the grossed up pension contribution & charitable donations, so if you are a high rate tax payer tax relief is given in full i.e. up to the top rate of tax you pay.

Alan

[tbrain]

Ta