Techtalk: Guidance Note on tax relief and how marginal rate tax applies

Tax Relief at Marginal Rate Income Tax relief is provided at ‘marginal rate tax’ which means that tax at the higher rate of 40% is reduced first and then the standard rate of 20%. So, the rate of income tax relief depends on whether client is taxed on lower standard rate (20%) and/or higher rate of tax (40%) on the relevant income. It has a similar impact as reducing the individual’s earnings for income tax purposes and therefore the applicable income tax paid. Where the pension contribution lowers the income tax below the standard rate cut off point, the portion below the standard rate cut off point will receive income tax relief at 20% and the amount above at 40%.

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