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ACCA Strategic Professional · Advanced Taxation (UK) · Income tax: the use of exemptions and reliefs in deferring and minimising income tax liabilities

Dev has taxable income, before any pension relief, comprising employment income of £150,000 in 2025/26. He pays a personal pension contribution of £40,000 gross, and his annual allowance of £60,000 is not tapered. Which statement about the tax relief on this contribution is correct?

Dev gets relief by having his basic rate band extended by the £40,000 gross contribution. That lets him claim the extra higher and additional rate relief beyond the 20% relief at source. The contribution is within his annual allowance and earnings.

  1. ARelief is given by extending his basic rate band by the gross contribution, so that £40,000 of income is taxed at 20% rather than 40% or 45%Correct
  2. BRelief is given only at 20% by the pension provider and nothing more can be claimed
  3. CRelief is denied because his income exceeds the £125,140 additional rate threshold
  4. DRelief is restricted to £3,600 because his income exceeds £100,000

Explanation

A personal pension contribution within the annual allowance and his earnings qualifies for relief. The basic rate band is extended by the gross contribution, which gives higher and additional rate relief. The £3,600 limit only applies where there are no earnings.

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