ACCA Advanced Taxation (ATX) Practice Exam

Which of the following is classed as relevant earnings under pensions?

1. Investment income

2. Trading income

3. Capital gains

4. Rental income

The correct answer is: Trading income

Relevant earnings under pensions typically refer to income that contributes to the calculation of pension contributions and tax relief on those contributions. Trading income is directly associated with self-employment and is often considered relevant earnings because it constitutes earned income. This type of income is essential for determining the maximum annual contribution that can be made to a pension scheme while receiving tax relief. Investment income, capital gains, and rental income do not qualify as relevant earnings for pension contributions. Investment income, such as dividends or interest, is not considered earned income, while capital gains, which arise from the sale of assets, are also excluded. Rental income can be complicated, but it does not typically count as relevant earnings if the individual is not actively engaged in a trading aspect of property management. Therefore, trading income is established as the correct answer, as it directly aligns with the parameters for establishing relevant earnings for pension purposes. This understanding is crucial for effective tax planning and maximizing contributions to retirement funds while ensuring compliance with tax relief regulations.