AAT Practice Assessment 1 (FA2016) Q8

IzzyOzzy

Please can someone explain how AAT get to £4,000 for this question?

Ruby has total income of £105,000. She wants to pay into her private pension scheme so that she can protect her full personal allowances of £11,000. She therefore needs to pay at least £X into her private pension scheme.

I've come back to this a few times and surely she would only need to make total net payments of £2,500 to make up for what she loses?

Any help is appreciated!!

douglasstroud

Hi
AAT are correct you need to reduce your total income by £5,000 so as not to lose any PA, so making pension contributions of £4,000 grossed up by 100/80 will be the £5,000 needed to reduce the net income to £100,000