1.Types of pension
The two main types of registered pension schemes available are occupational pension schemes and personal pension schemes.
If self-employed or unemployed, the individual can only set up a personal pension scheme. If employed, the individual may join an occupational pension scheme or set up a personal pension scheme or contribute into both.
The individual can get tax relief through contribution to pension schemes.
2、 Tax reliefs of two types of pension schemes
2.1 Occupational pension scheme
Directly deducted from the employment income before calculating the total income.
So the employment income can be calculated as follow:
Total employment incomes = Salary + Bonus + Taxable benefits - Allowable expenditures - occupational pension contributions
2.2 Personal pension scheme
An individual makes contribution net of 20% of income tax.(Gross personal pension contribution = net amount/80%.)
If the individual is a “higher rate” and “additional rate” taxpayer, the additional tax relief can be given by extending the donor’s basic rate band and the higher rate band by the gross amount of contribution (net amount/80%) in calculating the income tax liabilities.
It is the same as calculating the tax relief for Gift Aid Donation.