Tax advice of the week: Maximise your pension tax relief
Many higher-rate taxpayers miss out on maximum pension tax relief as they don't understand how it's worked out. Here's what you should know.
Many higher-rate taxpayers fail to maximise tax relief on their pension contributions because they don't understand how it is calculated, says Nick Braun in Business Tax Saver.
The maximum higher-rate relief you can claim is your "gross pension contribution x 20%" and you can only claim it if you have at least this much income taxed at 40%. To maximise your relief, you must ensure your gross contributions do not exceed the amount of income you have taxed at 40%.
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Spreading his contribution over several years would avoid this. To maximise relief, make a gross contribution of no more than "your taxable income minus £42,475". Multiply this by 0.8 to obtain the maximum amount you can invest.
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