How do contributions to personal pension schemes affect income tax position?

Income tax and contributions to a pension scheme?

• For a variety of reasons I am likely to have underpaid tax in some of the last few years (unearned untaxed rental income). I am in the process of straightening things out, but seem to remember from years ago that contributions to a pension scheme are allowable for tax and that if someone buys a pension they can spread the cost back over a few years to receive tax relief as if the pension had actually been purchased in that year. So, if a pension is bought for say £10000 the cost could be set off against taxable income in the say the previous 4 years at £2500 in each year. This is probably quite complex, and so if no-one knows a straightfoward answer perhaps they can point me to a suitable book or website for the info. Thank you.

• Answer:

  Rules on pensions just changed on 6 April 2006 and now you can only make a contribution in relation to 2006/07 during 2006/07, so no spreading anymore. If you made a big contribution you could reduce this year's tax to nil which would help to give you extra cash to pay earlier year's tax. Be aware you may well have incurred penalties by this stage. Worthwhile finding a tax adviser to help you.