PTC Question!! HELPPP
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??
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??
0
Comments
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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.0 -
so we only extend the basic tax rate if your a higher rate tax payer?0
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Correct - only higher rate tax payers can extend their basic rate tax band.
Speegs0
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