I know the received wisdom is that ISAs are a better bet than pension contributions for basic rate taxpayers. However, what if the taxpayer's liability in a given year is less than 3,600? In the year just ending, my wife's income will be just over 8,000. The personal allowance is just over
6,000 so her tax liability will be about 400. She does not have relevant earnings, so her pension contributions limit is 3,600 - on which she would get tax relief of 720 (by paying 2,880 as I understand it).So... the questions:
- Am I right in thinking that she can pay up to 3,600 in pension contributions even though her total taxable income is less than 3,600?
- Does this in fact result in tax relief of less than the actual tax paid on her income? It seems to me that in my example if she gets relief of 720 but only pays tax of 400 then the government is genuinely chipping in
Regards
Jonathan