Personal Tax Adjusted NetIncome


This is my first post and have my personal tax exam at the end of next week so would appreciate someone's help.

When someone makes a gift aid payment or pays into a personal pension scheme, is there an income level where the gross amounts paid get deducted from the net income?

From all the examples I have it appears that high earners have the amount reduced and then the tax band is increased by the same amount however I have example questions where net income is around £45000 and an amount is paid into a personal pension plan but that gross amount is not deducted from the net income? Then on other questions, earnings are around the same and gift aid and personal pensions are deducted?

I am guessing that there must be a set rule but everytime but cannot find anything definite?

Would really appreciate someone's thoughts?



  • PeterCPeterC Posts: 149Registered, Tutor
    You may be confusing two issues.

    Yes, you should always ADD gross contributions to personal pensions and gift aid to the tax bands, in order to obtain the appropriate tax relief.

    Separately, you may need to calculate ADJUSTED net income (ANI) for high earners. ANI is calculated by DEDUCTING gross contributions to personal pensions and gift aid from net income. If the ANI is above £100,000, the personal allowance needs reducing.

    Do not use ANI for anything except determining personal allowance. In particular, do not use it to calculate taxable income.
  • CooksCooks Posts: 3Registered

    Thanks for the reply, are high earners classed as earning over £100k or those people that are in the higher tax band i.e £31785 plus in the 2015 version? The practice exam for this year has the following

    Income £45300
    ISA interest £320
    Building Society Interest £1480
    Dividends £774

    He also pays £150 per month into a private pension scheme.

    It then has the following answer for the net income tax

    Income £45300
    ISA interest £
    Building Society Interest £1850
    Dividends £860
    Total £48010
    Personal allowance £10600
    Taxable Income £37410

    The tax band rate is then increased by the pension payments but the amount is not deducted from the adjusted net income?

    Thanks again for your help

  • PeterCPeterC Posts: 149Registered, Tutor
    By high earners, I meant those with net income of at least £100,000. It doesn't really matter; you could do the calculation for the taxpayer in the question but the ANI would be 48010- (12x150x100/80) = 45,760. As this is below £100,000 the personal allowance remains £10,600 and the taxable income is 48,010-10,600 = 37,410.
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