ACCA Advanced Taxation (ATX) Practice Exam

What is the maximum tax relief contribution available for pension schemes?

1. The total gross contributions paid

2. The higher of £3,600 or 100% of relevant earnings

3. £2,000 or 50% of annual earnings

4. Unlimited contributions if under 50 years old

The correct answer is: The higher of £3,600 or 100% of relevant earnings

The maximum tax relief contribution available for pension schemes is determined by the higher of £3,600 or 100% of relevant earnings. This means that individuals can claim tax relief on contributions made to their pension schemes up to these limits. Relevant earnings typically include income from employment, self-employment, and certain other sources, and this rule ensures that individuals are incentivized to save for retirement in a tax-efficient manner. If an individual has relevant earnings less than £3,600, they would still receive tax relief based on that amount. Conversely, if their relevant earnings exceed this threshold, they are allowed to contribute up to 100% of those earnings and receive tax relief on the entire contribution. This structure encourages higher savings among individuals with greater earnings while also supporting lower earners. Other options do not reflect the correct limits or rules set by the tax authorities regarding pension contributions and tax relief. Understanding these limits is essential for effective tax planning and maximization of pension benefits.