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Previously on "Personal Pension Contributions & Basic Rate Limit"
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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
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Personal Pension Contributions & Basic Rate Limit
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.Tags: None
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