Re: Strange logic - losing out because tax rate drops from 22% to 20%


"Ronald Raygun" <no.spam@xxxxxxxxxxxxxxxxxxxxx> wrote in message
news:v%hoj.88$cJ.23@xxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Andy Pandy wrote:

"Tim Woodall" <devnull@xxxxxxxxxxxxx> wrote in message
news:slrnfq20m2.k2h.devnull@xxxxxxxxxxxxxxxxxxxxxxxxxxxxx

No, IIRC anyone earning between about £8000 and £18000 will end
up
paying more income tax, and getting less pension tax relief.

I can understand the first part of that but not the second. Why
does
someone earning 18000 pa who was paying 100GBP gross into their
pension
end up worse off due to receiving less tax relief on their
pension

Because the abolition of the 10% band will cost them more than the
2%
reduction in the basic rate saves them. Then when it comes to
pension
tax relief, their £100 gross contribution will cost them £80,
whereas
now it costs them £78.

But surely it is meaningless to consider the net equivalent of the
gross
cost of the pension contribution. Someone earning £18k pa gross,
and
contributing £100 pm (£1200 pa) of that into a pension, simply gets
taxed on a notional income of £16800. That the £1200 pension
contribution has notionally "cost" him less net than it soon will,
is really neither here nor there, is it?

Of course it is. That's how much the pension contribution has cost
him, either directly (if he makes a contribution into a personal
pension), or indirectly (if it's deducted from his pay, it's the pay
he would otherwise have received).

--
Andy




.

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