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Synopsis of query as published
Synopsis of query as published
A client had relevant earnings of £36,785 for 2000-01. £32,400 was taxable after personal relief including £4,000 of income taxed at the higher rates. In January 2002 a personal pension premium of £36,785 was paid and carried back to 2000-01, thus extinguishing all income for that year. Upon payment of the premium, 22 per cent tax relief on the full premium was allowed at source, being greater than the tax originally due on the income of the year less personal allowance. The question then arose as to whether a further £4,000 of tax relief at 18 per cent could be claimed in respect of the higher rate charged on the income, and if so, how could that be claimed.
Summary of replies
'Man of Milton Keynes' pointed out that section 639(3), Taxes Act 1988 gives entitlement to deduction of basic rate tax upon payment of the premium (where it is paid after 5 April 2001) and subsection 5(a) authorises the extension of the basic rate band by the amount of the contribution. Therefore 22 per cent tax relief was correctly deducted at source and in addition higher rate relief on £4,000 at 18 per cent is also due, to be claimed on the self-assessment return. 'Goldstone' was of the same view and pointed out that a claim would normally be made in the self-assessment return, but if that has already been sent in, then the form PP43 can be used.
Outcome of the case
The querist claimed relief in accordance with 'Goldstone's' reply and a repayment has now been made. Total tax relief of £8,812.70 was achieved by payment of the premium, as compared to the original liability which was £7,665.60. Clearly, it was good advice to pay the premium in the following year and claim carry back to 2000-01.
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