Hi.
How is tax relief calculated for a higher rate taxpayer with a combination of both earned income and unearned income in the form of pensions and rent? In this scenario, is the earned income regarded as the bottom slice, against which the nil rate band and basic rate bands apply, with the other income lying above this for taxation purposes?
For example, Mr X has unearned income of £20k derived from rent and pensions, and earned income of £63,000 - £20k above the top of the basic rate band. He now pays £63,000 gross (£50,400 net) into a pension plan, using carry forward. Could someone explain how the tax is calculated, and whether it makes any difference whether the earned income is regarded as the bottom slice or not? My hope would be that of the total income of £83,000, £40,000 of it would be regarded as offsettable against higher rate tax for the pension contribution, but I suspect this not to be the case.
Or have I gone completely off the rails, somewhere? Thanks!
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