AVCs and tax benefits

jem16

jamesd wrote: »

If not then you should discuss with HMRC because I think that you will be able to claim an extra 20% tax relief from HMRC. Maybe not, because it depends on how the two incomes are taxed, it's possible that neither is taxed at 40%, but that doesn't seem correct if it's happening and I expect that HMRC would want to give you a tax code that causes work to take higher rate tax from you.

In my case my work salary and pension income are both taxed at 20%. My savings/dividend income is the part which knocks me into higher rate tax.

As my savings/dividend income fluctuates I prefer to monitor it throughout the tax year and pay in an appropriate amount to a personal pension to bring me back into basic rate tax. Therefore I use my tax return as opposed to having tax codes changed.

jamesd

That makes sense. I do something similar, setting salary sacrifice pension contributions so I'll probably not go into paying higher rate tax after less predictable income arrives. Soon I'll be checking 2009-10 income to see whether any additional personal pension contribution is needed.

eileenfromplaistow

I think this is on the same topic, please be patient.
My husband is 54, and can take a pension from a previous pension scheme of about £6400 pa from April 1. He is employed, on a salary of £48000, and pays 12% of that into their money purchase scheme. We do not need the pension money, but are wondering if he takes the pension, can it go straight into the current one as AVCs without tax needing to be deducted from it? There are murmurings about the viability of the older scheme (final salary) so we would like to get some money from them now.

jamesd

eileenfromplaistow, you and he should read about the Pension Protection Fund that protects defined benefit (final salary and similar) pensions. If you and he are still not content to leave the money where it is then he can ask them to provide him with a transfer value. That transfer value may be substantially less than the value of the pension he would get but it has the advantage that it would allow all of the money to be transferred to another pension, eliminating the dependency on the former employer. The PPF is likely to be a better idea and you should contact them and get details of how they protect this pension before acting.

If the pension that can pay out £6400 pa is a defined contribution scheme, not a defined benefit one, then it would be 100% protected and also 100% transferable to another pension. The whole capital value, not just the option to take income.

He can't simply have the annual or monthly payments paid into the current pension as AVCs or into a personal pension. However he can tell HMRC about all of his pension contributions and they will adjust his tax code to allow for the combined effect of the extra income and extra pension contributions. That would have the effect of eliminating tax on the pension, though I expect it would be taxed and the PAYE job would have an adjusted tax code to compensate. However, if you are concerned about the health of the scheme and not reassured by the PPF then a transfer may be a better idea than this.