FYE Tips, Pension - 57% tax relief?

Almost 60% tax relief?

Anyone with a taxable income of MORE than £100,000 loses £1 of their income tax free personal allowance for every £2 earned.
This means any client whose income exceeds £112,950 effectively loses their entire personal allowance of £6,475 (2010/11)

However if you earn over £100,000 and are able to manipulate your income - for example you own and run your own business - you can legally receive almost 60% income tax relief on pension contributions

Example:
John Smith has taxable income of £115,000. He makes a net (before tax relief) contribution to his pension of £12,000 - this is the amount that leaves his bank account.

This is immediately grossed up with the addition of basic rate tax (20% 2010/11) to £15,000 - so John now has this in his pension.

This pension contribution has now reduced John's taxble income to £100,000 and reinstates his entire personal allowance, making a saving.

In addition, as usual, John will benefit from higher rate tax relief (40% 2010/11) on the pension payment. The total saving is £8,590 - equivalent to 57.26% tax relief on John's payment.

John might also want to read yesterday's blog (!) in case he can have his company make further payments up to a maximum of £255,000 - another opportunity that will disappear after this tax year ends.

I am grateful to the good and clever people at Standard Life Technical Support for pointing out this opportunity to me and my clients