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ACCA Strategic Professional · Advanced Taxation (UK) · Income tax: the comprehensive computation of taxable income and the income tax liability

Hana has salary of £118,000 in 2025/26 and no other income. She makes a personal pension contribution of £8,000 net to a relief at source scheme, which is a gross contribution of £10,000. What is her personal allowance?

Her personal allowance is £8,570. The gross pension contribution of £10,000 reduces adjusted net income to £108,000, giving an excess of £8,000 over the £100,000 limit. Half of that, £4,000, is withdrawn from the £12,570 allowance. Ignoring the contribution would give £3,570.

  1. A£3,570
  2. B£8,570Correct
  3. C£12,570
  4. D£3,570 reduced further by the £10,000 gross contribution

Explanation

The gross contribution is deducted in arriving at adjusted net income, which is therefore £118,000 - £10,000 = £108,000. The excess over £100,000 is £8,000, so the reduction is £4,000. The allowance is £12,570 - £4,000 = £8,570. Using £118,000 gives £3,570, which ignores the pension relief.

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