PTC Question!! HELPPP

Options
tauq786x
tauq786x Registered Posts: 35 Regular contributor ⭐
Hey there,

was just wondering whether anyone could explain gift aint and pension schemes, and what exactly to do with em :confused1: something about extending the basic rate??

Comments

  • JodieR
    JodieR Registered Posts: 1,002 Beyond epic contributor 🧙‍♂️
    Options
    Hi
    When contributions are made to a personal pension they are made net of basic rate tax. This means that if you pay £800 into a pension scheme during a year that the pension provider will get another £200 from HMRC to add to your contribution and you'll end up with £1000 in your pension fund.
    If you pay tax at the higher rate, instead of you informing the pension provider that there is extra tax to reclaim, you get relief for it through your tax return instead, and this is given by (as you said) extending the basic rate band. It needs to be extended by the pension payment plus the basic rate tax, so in this example it would be extended by £1000. This means that £1000 more of your income will be taxed at basic rate (20%) rather than higher rate (40%).
    Similar situation for gift aid - if you paid £80 to a charity they can claim back £20 from HMRC (or maybe a bit more due to the changing of tax rates, but that doesn't affect your calculation). You then extend your basic rate band by £100 to get full tax relief on the gift.
  • tauq786x
    tauq786x Registered Posts: 35 Regular contributor ⭐
    Options
    so we only extend the basic tax rate if your a higher rate tax payer?
  • speegs
    speegs Registered Posts: 854 Epic contributor 🐘
    Options
    Correct - only higher rate tax payers can extend their basic rate tax band.

    Speegs :)
Privacy Policy