Chapter 5: Pensions

Question 5.1-Answer
a.
Earnings £90,500
Less: occupational pension contribution (15,000)
Net income 75,500
Less: personal allowance (12,500)
Taxable income 63,000
Computation of tax
£37,500 x 20% £7,500
(£63,000 – 37,500) x 40% 10,200
Tax payable 17,700
b.
Net income £90,500
Less: personal allowance (12,500)
Taxable income 78,000

Computation of tax
£52,500 x 20% £10,500
(£78,000 – 52,500) x 40% 10,200

Tax payable 20,700

Basic rate and higher rate limit

£37,500 + (£12,000 x 100/80) = £52,500
£150,000 + (£12,000 x 100/80) = 165,000
c. The difference in the amount of tax payable under two situations is equal to the tax relief
Clara received at source (£3,000) in case of contribution to personal pension plan. She paid only
£12,000 for a gross contribution of £15,000. So overall tax position under both the situations
remains same.

Page 1 of 3
Question 5.2-Answer
£
Trading income from partnership 181,500
Less qualifying interest paid (5,000)
Net income (adjusted income) 176,500
Reduced annual allowance
Adjusted income 176,500
Less income limit (150,000)
Excess 26,500
Annual allowance 40,000
Less half excess (£26,500 x ½) (13,250)
Reduced annual allowance 26,750

Question 5.3-Answer
(a)
£
Annual allowance 2019-20 40,000
Annual allowance unused in 2016/17 (£40,000 – 16,000) 24,000
Annual allowance unused in 2017/18 (£40,000 – 36,000) 4,000
Annual allowance unused in 2018/19 (£40,000 – 25,000) 15,000
Maximum gross pension contribution in 2019/20 83,000

(b)
£
Annual allowance 2019-20 used in 2019/20 40,000
Annual allowance unused in 2016/17 used in 2019/20 3,000
Contribution in 2019/20 43,000
The remaining £(24,000 -3,000) = £21,000 of the 2016/17 annual allowance cannot be carried
forward to 2020/21 since this is more than three years after 2016/17. The unused allowances

Page 2 of 3
are therefore £4,000 from 2017/18 and £15,000 from 2018/19 and these are carried forward to
2020/21.

Question 5.4-Answer
£
Annual allowance 2019-20 40,000
Annual allowance unused in 2018/19 (£40,000 – 17,000) 23,000
Maximum gross pension contribution in 2019/20 63,000

The annual allowance for 2017/18 is not available as Morris was not a member of a pension
scheme in that year.

Page 3 of 3