What is net income for pension relief purposes?

The lifetime allowance is the maximum amount of pension and/or lump sum that benefits from tax relief. The lifetime allowance is currently set at £1,073,100. The annual allowance for tax relief on pensions is currently £40,000 and there is a three

The lifetime allowance is the maximum amount of pension and/or lump sum that benefits from tax relief. The lifetime allowance is currently set at £1,073,100. The annual allowance for tax relief on pensions is currently £40,000 and there is a three year carry forward rule that allows taxpayers to carry forward unused annual allowance from the last three tax years if they have made pension savings in those years. 

If you have a reduced (tapered) annual allowance the first step is to calculate your net income. Your net income is your taxable income for the year less any tax reliefs such as payments made to your pension scheme that had tax relief but were paid before the relief was applied. You will also need to quantify your pension savings, threshold income and adjusted income.

Those with an adjusted income over £240,000 will begin to see their £40,000 annual allowance tapered. For every complete £2 income exceeds £240,000 the annual allowance is reduced by £1. In recent years, both the annual and lifetime allowances have been gradually reduced removing the amount of tax relief on pensions available to high earners.

Source: HM Revenue & Customs Wed, 23 Jun 2021 00:00:00 +0100

Latest INSIGHTS

Check out our latest Insights for useful accounting tips and information.

Entitlement to carer’s allowance

Carer’s credit is a National Insurance credit that can help carers to fill gaps in their National Insurance record. Carers who don’t qualify for Carer’s Allowance may qualify for Carer’s Credit. This may also help carers increase their State Pension

Read More

Rent a Room Scheme – another income stream

The rent-a-room scheme is a set of special rules designed to help homeowners who rent-a-room in their home to create a valuable tax free income stream. If you are using this scheme, you should ensure that rents received from lodgers during the

Read More

HMRC to accept service of legal proceedings by email

HMRC has issued an updated ‘news story’ to confirm that, where possible, new legal proceedings and pre-action letters can be served on the department using email instead of post. This measure was originally introduced in April 2020 in response to the

Read More