The following questions all relate to pension tax relief.
QUESTION 01: Kevin, a UK resident, runs his own business and draws a salary of £800 each month and dividends of £30,000. He has been left a legacy of £32,000 and wants to know how much he can contribute to his SIPP, in the current tax year and benefit from tax relief. He has available carry forward in the current tax year of £24,000.
A) £9,600 net
B) £9,600 gross
C) £36,000 net
D) £36,000 gross
QUESTION 02: Sara-Jane, aged 53, has fully used up her annual allowance for the current tax year (including any available carry forward). Due to an administration error, her pension provider has paid compensation of £20,000 into her personal pension plan. How will this compensation impact on her annual allowance in the current tax year?
A) In spite of not receiving any tax relief, the compensation payment will be regarded as pension input and will be assessed against her annual allowance. As her annual allowance has already been fully used for the current tax year the whole of the compensation payment will be subject to the annual allowance charge.
B) Whilst the compensation payment will be assessed against her annual allowance, it will not be subject to an annual allowance tax charge as the compensation payment did not benefit from any tax relief.
C) As the £20,000 is a compensation payment it will not be assessed against annual allowance
D) As it is not permitted for a pension provider to pay a compensation payment in this manner, the £20,000 will need to be repaid to the provider and then paid directly to Sara-Jane.
QUESTION 03: Chris runs his own company and draws a salary of £9,600. He wants to know the maximum pension contribution his company can pay on his behalf and how to ascertain if it will benefit from corporation tax relief. Which one of the following statements is correct?
A) The company will benefit from corporation tax relief only to the extent that the contribution doesn’t exceed 100% of Chris’ relevant UK earnings.
B) The company will benefit from corporation tax relief provided its contribution, together with any personal contribution paid by Chris do not exceed 100% of his relevant UK earnings.
C) The company can potentially benefit from corporation tax relief on any level of contributions for an employee or former employee, subject to it not exceeding his annual allowance (together with any available carry forward) for the tax year concerned.
D) The company can potentially benefit from corporation tax relief on any level of contribution for Chris, subject to HMRC agreeing that it is paid ‘wholly and exclusively’ for the purposes of the trade.
QUESTION 04: John earns a salary of £110,000 and makes a £10,000 gross contribution to a stakeholder pension. His effective rate of tax relief on this contribution is…..
QUESTION 05: Stephen has a stakeholder pension plan, which was set up in 2002, to which he has been making regular contributions since then. He is due to emigrate to Spain on 1 October 2013 and will have relevant UK earnings of £10,000 in the period from 6 April 2013 to 30 September 2013. What is the maximum contribution he can make to his stakeholder scheme and qualify for tax relief at source for 2013/14 and how much and for how long can he contribute thereafter. Assume he never returns to the UK nor has any further relevant UK earnings.
A) £10,000 can be paid during 2013/14, after which contributions must cease
B) £10,000 can be paid for 2013/14, but must be paid prior to his becoming non-resident on 1 October 2013, after which contributions must cease
C) £10,000 can be paid during 2013/14 after which contributions of up to £3,600 can be made in respect of each subsequent tax year but contributions must cease from tax year 2018/19.
D) £10,000 can be paid during 2013/14 after which contributions of up to £3,600 in respect of each subsequent tax year can be made but contributions must cease from tax year 2019/20.
Questions supplied by Technical Connection