Our intrepid explorer into tax law is a skilled worker. She earns a very respectable 110K. In order to avoid the tapering of annual allowance she's paid 20K (gross) into her pension each year.
Unfortunately (or fortunately), last year she got made redundant - and got a 100K package, the first 30K of which was tax free. Due to her valuable skills, she was able to secure a new job at the same pay and started immediately her notice period expired so there was no break in employment.
Delighted at this turn of events, she decided to pay her 100K package into her pension, making use of the available carryback.
Come January and she has to do her tax return. She has managed to encode the vaguarities of tax law into a spreadsheet. She puts her numbers in and is delighted to see that she only needs to pay 21200 in tax and will get a healthy refund from the taxman.
However, nobody is infallible - and on looking at her bank statements she realises that she gets 10p per month in interest.
So she puts this one pound of additional income into her spreadsheet and is horrified to see her tax bill leap to 35200. Thats 14K of tax on one pound of income!
Never mind, she thinks, I'll just do a gift aid donation and carry it back. Unfortunately, that only reduces her tax bill by 20p per pound.
On further investigation, our explorer discovers that the problem is that her adjusted income for the year is 210001, reducing her pension annual allowance to 10K leading to an excess pension contribution of 30K that is taxed at 40%. When her income is £1 less her threshold income is 110000 where pension allowance tapering doesn't apply.
Many years ago I remember talking to a colleague from India. He said that the tax law then was so complicated and had so many weird cases that if you ever ended up paying more than 100% tax then you could give the money to the government and remove it from your tax calculation, effectively capping the maximum tax rate at 100%
Does our intrepid explorer have a similar get out?
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