Redundancy and tax efficient options

uk0cbe wrote: »

By the time of my redundancy next month, my total taxable pay for the ytd will be c£60k, therefore I won't have paid 40% on anything near the £50k of the proposed additional AVC contribution.


So, if I understand correctly, are you saying that, although I have unused Annual Allowance under the '3 year carry forward rule', I can only make use of the 'headroom' in the AA to the extent of my higher rate (40%) salary earnings in the CURRENT financial year?

Others may also have a view but in simple terms you can't get 40% relief on money you haven't paid 40% tax on in the current tax year.

So you will have £115k of taxable income this tax year - £60k salary + £55k taxable redundancy pay.

The £55k you are funneling through the AVC to avoid 40% tax. If you put an additional £50k in some of that will attract 40% relief, and some will attract 20% relief.

So you will get 40% on £60-45K = £15k of your £50k contribution and 20% on the remaining £35k.

I can't work out from your posts so far how you actually get the tax relief in your specific situation as I am not familar with how a lump sum contribution to an AVC pot gets dealt with from a tax relief perspective but am assuming you have that clear in your mind.

uk0cbe wrote: »

Thanks AlanP.
So, less tax relief/refund than I was hoping but possibly still around £13k (40% on £15k + 20% on £35k) based on those numbers.


Regrettably, I am still very much in the dark as to how the tax relief/refund on a lump sum AVC contribution is processed. I've even spoken to HMRC who were less than clear on this issue.
If anyone can shed any light on this issue I'd be most grateful.

What does your provider say as it sounds like you are not the first person to have done this from your posts?

uk0cbe wrote: »

Thanks AlanP,


Whilst my employer can facilitate the opening of an AVC and process contributions, they can't provide personal tax advice.

Who is the AVC actually with? The one I have is with Clerical Medical, my wife's is with Standard Life.

You don't want advice form them but the ACV provider should be able to explain the process.

With our AVC schemes if we were to put in, via payroll deduction, an amount that reduced our taxable income per month below our monthly tax allowance level we wouldn't get any tax relief on that portion as our employer would have nothing to offset it against.

If we wanted to put that much in we would need to contribute into the AVC down to tax allowance level and put the remainder into a SIPP / PP where it would benefit from an automatic 20% tax reclain from HMRC (even though we haven't paid tax on it).

You need to ensure you don't end up missing out on the tax relief, particularly with the added complication that it isn't a payroll deduction.