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I have been suggesting to clients that they consider making lump sum pension contributions in alternate fiscal years so as to reduce their income for tax credit purposes. This can mean up to 96% (22% + 37% + 37%) combination of tax relief and tax credit and takes advantage of the new rules governing pension contributions combined with the £25,000 disregard in respect of increases in income for tax credit purposes.
I have been suggesting to clients that they consider making lump sum pension contributions in alternate fiscal years so as to reduce their income for tax credit purposes. This can mean up to 96% (22% + 37% + 37%) combination of tax relief and tax credit and takes advantage of the new rules governing pension contributions combined with the £25 000 disregard in respect of increases in income for tax credit purposes.
My concern is whether such an approach might be caught by anti-avoidance legislation. Taxation readers' thoughts and views would be very welcome.
Query T17 096 – Backwoodsman.
Reply by Brumus:
The basic rate taxpayer receives 22% tax relief on his pension contribution and then depending on total income and circumstance for every £1 that his income has been thereby reduced he receives 37p of tax credits in the year of contribution and a further...
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